Residential land prices rose an average of 1.3% over the year to January 1 on average, after a 0.1% gain in 2006. This is the 2nd rise in 16 years. When you consider that Japan is mostly suffering from depopulation these are impressive growth numbers. Commercial land prices rose 3.8% in 2007, after a 2.3% gain in 2006. The property market is however showing signs of cooling. But it seems counter-intuitive to think a market that has collapsed the bottom of a credit crush is going to collapse further. The problems in the USA might dispel growth prospects, but they are not going to undermine the yields on Japanese property in a hurry. In recent years construction activity has returned to Tokyo and the other major cities.
The 2007 statistics show major cities such as Tokyo recording sharp rises in land prices whilst many rural areas continued to decline. This disparity is not likely to continue much longer, particularly given the prospect of stronger food prices offering rural farmers a reprieve from high labour costs. Also the cities have always lead the way in trend changes, so it seems reasonable to expect rural prices to bottom soon, particularly in those areas closest to the major cities.
In the three biggest urban regions, residential land prices rose 4.3% while commercial prices surged 10.4%. In Tokyo-23 wards, the average residential land prices rose 10.4%, although that was slightly slower than 11.4% in 2006. Prices in rural areas dropped for the 16th straight year, though the pace has fallen to just 1.8% for residential land and 1.4% for commercial land. Again we need to consider the disparity in land prices between regions, and the positive impact that higher food prices could have on land prices in future. The increase in land prices does however suggest that inflation has returned to Japan.
Japan's central bank is expected to refrain from raising interest rates for the foreseeable future because of growing concerns about volatile markets and the weak outlook for the global economy. It seems unlikely that the Bank of Japan (BoJ) is unlikely to cut interest rates further since they are already at 0.5 percent - the lowest among the OECD countries. The fact that the BoJ has raised interest rates in the last couple of years seems to suggest that the BoJ has no desire to stimulate real estate speculation like in the 1980s. Given that business confidence reports released Monday show Japanese business confidence slumped to the lowest level in 4 years suggests that the Japanese economy is not going to be resuscitated by anything other than substantial reform in Japan, or broader global recovery, which is a long way off. Business sentiment fell to -9.3% in the Mar-08 quarter, down from +0.5% in the previous quarter.