Japan land prices rise for first time in 16 years in 2006

Japan land prices rise for first time in 16 years in 2006

	Published : Thu, 22 Mar 2007 09:07 By : Agencies Print this Story

TOKYO (XFN-ASIA) - The average price of land in Japan rose for the first time in 16 years in 2006, according to an annual government survey, the strongest sign yet that the country is emerging from years of deflation.

An annual survey conducted by the Ministry of Land, Infrastructure and Transport showed that the average price of residential property in Japan rose 0.1 pct in 2006, while the average price of commercial land jumped 2.3 pct.

It was the first time in 16 years that property prices in more areas in Japan increased although real estate prices in the capital Tokyo began rising in 2005, the first time they did since 1990.

The data are based on a survey by the land ministry of assessed land values at 30,000 sites throughout Japan as of Jan 1 this year. The data will be used to compute land taxes for the next financial year to March 2008, which begins next month.

The survey also found that both commercial and residential land prices rose in all 23 central wards in Tokyo, which means that property values have already started to recover in key urban markets where prices fell the most following the bursting in the late 1980s and early 1990s of Japan's asset-inflation bubble.

The annual poll showed that nine out of 47 prefectures saw a rise in residential property prices in 2006, compared to just one prefecture in 2005 which was Tokyo.

Some 11 prefectures also saw prices on commercial properties rise last year, up from four in 2005.

In Tokyo, the average price of residential land increased 8.0 pct in 2006, rising for the second consecutive year, while the average price of commercial property increased 13.9 pct, also up for the second straight year.

In Osaka, the second-largest prefecture in Japan, the average price of residential properties rose 1.9 pct last year, the first rise in 16 years, while the price of commercial properties there jumped 10.3 pct, the second straight year of increase.

The average price of residential land in Aichi, Japan's third-largest prefecture, gained 1.9 pct last year, also the first increase in 16 years, while the average price of commercial land rose for the second consecutive year, by another 7.6 pct.

'The upturn in prices which began in the central Tokyo area is now beginning to spread to large cities in the regional areas, and we also started to secure good sites in these areas,' said Toshihiko Kazama, executive officer at Mitsubishi Estate, which owns many office and commercial buildings in the central Marunouchi area in Tokyo.

'In central Tokyo, rent has already risen to levels not seen in many years,' he added.

Although land prices have clearly turned the corner, Bank of Japan central governor Toshihiko Fukui said Tuesday he was not worried about the risk of a bubble recurring in the housing market.

He said that while increases in land prices in major cities such as Tokyo, Osaka and Nagoya look 'somewhat rapid, they have not deviated notably' from the fair value levels based on a discounted cashflow method.

'Although it is difficult for us to base our policy on land prices or the foreign exchange market, we will bear in mind these developments and make the appropriate policy judgement,' Fukui added.

Analysts said the latest land price survey supports the BoJ's position of adjusting interest rates gradually as the economy continues to expand moderately.

'The land price survey underscores the fact that Japan is no longer in deflation,' NLI Research Institute senior economist Taro Saito said.

'With land prices now set to rise steadily going forward, there is no obstacle for the BoJ to continue to hike interest rates.

'Having said so, the timing of the next rate increase and the prospect of future rate adjustments largely depend on whether the core consumer price index can start rising in a more stable trend,' Saito added.

Last month, the central bank increased the minimum lending rate for commercial banks to 0.5 pct from 0.25 pct, confident the move won't derail the ongoing economic recovery. It was the second hike in the current slow credit-tightening cycle launched in July 2006, when the BoJ lifted its key rate for the first time in six years.

'The annual land price survey is clearly positive news for the BoJ as it endorses its view that steady but gradual adjustment of interest rates is necessary,' said Informa Global Markets (Japan) economist Kenji Arata.

(1 usd = 117.49 yen)

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