Japan’s land prices post first decline in three years

Source : Business Times - 24 Mar 2009

Commercial prices down 4.7% while residential land lost 3.2% last year

Japanese land prices fell for the first time in three years in 2008, a government survey showed yesterday, highlighting the impact on the real estate market of the deepening global financial crisis.

Severe economic conditions have hurt housing demand, and tighter credit has made it hard for real estate developers to raise money, putting many firms out of business.

Prices of commercial property fell more sharply than for residential property, underlining the impact of the financial crisis.

Commercial land prices fell by an average 4.7 per cent last year while residential land lost 3.2 per cent in value.

‘It has been hard for companies to raise money for a while, and the situation is getting even worse,’ said Masayuki Kitamoto, director of land price research at the Ministry of Land, Infrastructure, Transport and Tourism.

Failures among real estate firms and operators of real estate investment trusts (Reits) have been on the rise since last year.

The number of bankruptcies in the real estate sector jumped 24 per cent to 575 cases in 2008 from 463 in 2007. The total debt involved rose to 2.08 trillion yen (S$32.8 billion) from 1.33 trillion yen, according to Tokyo Shoko Research.

The toll continues to rise. Real estate investor Pacific Holdings filed for bankruptcy protection earlier this month, in the country’s third-biggest failure this year. The government has been trying to help real estate firms by providing loan guarantees via state-backed banks, while the Bank of Japan last month began accepting bonds issued by Reit operators as collateral.

A quarterly survey by the central bank showed in December that banks’ lending attitude towards the real estate sector worsened in the final quarter of last year.

Nationwide land prices in Japan fell an average 3.5 per cent in 2008, compared with a 1.7 per cent rise in 2007. Prices had been rising for two years after 15 straight years of decline as the country grappled with the aftermath of the bursting of an asset bubble in the early 1990s.

The land ministry official said the latest survey of 28,227 land lots showed that there were sharper declines in places where prices had previously risen rapidly, highlighting the impact of investment funds rushing into and out of the real estate market.

Commercial land prices in the Tokyo area fell an average 6.1 per cent in 2008, in a sharp contrast to a 12.2 per cent gain in 2007. The nationwide average price fell 4.7 per cent after rising 3.8 per cent the year before.

Residential area prices in the Tokyo area slipped an average 4.4 per cent in 2008, against a 5.5 per cent rise in 2007, while the national average fell 3.2 per cent after edging up 1.3 per cent the year before.

The land ministry official said demand for property fell as business conditions deteriorated rapidly in the manufacturing sector in the second half of last year.

In the Nagoya area, where Toyota Motor Corp and many other car-related manufacturers are based, commercial land prices fell an average 5.9 per cent after rising 8.4 per cent in 2007.

Japan’s economy shrank 3.2 per cent in October-December, marking the biggest contraction since the first oil shock in 1974, and many economists expect a similar contraction in the current quarter.