After 15 Years – Japan Property Prices Rising

 

May 29, 2013 –

A rush of money from stimulus measures by the Bank of Japan is prompting people to borrow money and buy homes, buoying urban land prices and the nation’s economy.

A boost to prices for assets such as property has been a primary goal for Prime Minister Shinzo Abe as he rolls out his economic program, known as “Abenomics, seeking to end more than 15 years of price deflation that has sapped the strength of the economy. Figures suggest that the plan is working so far. A longer-term recovery now appears possible, but not certain, economists say.

Housing starts rose 7.3% from a year earlier in March, the seventh consecutive month of higher figures . Real-estate purchases have also helped to boost bank lending, which rose in April to ¥405 trillion, a 2.1% increase from a year earlier. “We are seeing a strong increase  in the number of people looking to buy properties,” said Mitsuo Sato, executive managing director at real-estate broker Ken Corporation Ltd.

That higher demand has started to translate into gains in property values, which have largely eluded Japan ever since land prices tumbled more than 70% following the collapse of the 1980s bubble economy. Data released recently showed that rising demand for residential property, particularly in Tokyo , was a primary factor in driving land prics higher.

Values rose  in 53% of selected locations in Japan’s major cities, marking the first time in five years that prices in a majority of the locations increased in the quarterly survey, which covered January through March. A quarterly survey by the land ministry showed land prices rose in the first three months of 2013 in more than half the 150 areas covered.

Earlier this month, the government said that Japan’s gross domestic product expanded at an annualized pace of 3.5% in the first three months of the year, with a sharp 7.9% increase in private residential investment.

The figures are among the latest signs that the new policies are changing how people spend their money. The Japanese government and the Bank of Japan have pledged to defeat deflation, setting a target of a 2% annual increase in prices, largely through a doubling in asset purchases by the central bank.

Economists say that the inflation targeting appears to be working where other strategies have not. Even though Japan has had extremely low rates for years, with mortgages typically available for 2%-4%, or less, there had been no rush to buy homes. People in the market say that would-be homeowners are now buying largely because they see higher mortgage rates ahead. “Compared to two or three months ago, there are more people who are considering fixed-rate plans,” said Chihiro Someya, a home-loan salesperson at Resona Bank, a major Japanese lender. In a sign of the changing expectations, a survey by the state-owned Japan Housing Finance Agency in February showed 53.3% of borrowers selected a fixed-interest rate plan, up from 42.7% four months earlier. The shift is taking place even though deflation appears still entrenched. The core consumer price index was down 0.5% in March from a year earlier. Another factor boosting sales is a planned increase in the national consumption tax, which is set to increase in two stages from 5% to 10%. The tax is payable on house purchases. The tax is to rise to 8% in April 2014, and to 10% in October 2015.

Nobuyuki Saito, 30 years old, and his wife Hanae, 30, were among those deciding to move ahead with a home purchase  in Tokyo before prices rise. “We actually wanted to save money first but we’ve been told we might not be able to afford one after the sales tax rises,” Mrs. Saito said.

Investors are also seeing fresh opportunities in the market. Sparx Group Co. Ltd. , a Tokyo hedge fund, has invested about ¥25 billion in residential real estate nationwide, primarily funded by foreign sovereign-wealth funds , according to Shuhei Abe, the fund’s chief executive officer. The CEO said he expects additional investments in June and September will bring the sum to ¥40 billion.

He said retail funds will shift to real estate and stocks as the economy recovers and investors  come to expect inflation. “Household assets that have been like glaciers before will now start to defrost,” he said. But questions remain over the longer-term prospects for the economy. For the recovery to gather strength, higher wages  and an increase in individual spending will be needed, according to both private-sector economists and government officials. “Improvement in employment and income conditions need to be watched carefully,” said a land ministry official. “Large-scale purchases cannot be made unless employment is secure and salaries increase,” he said.

(Source – “The Wall Street Journal – Asia Edition”, Pic – Tokyo Office Buildings / Ziv Magen)

 

 

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