Japan Releases Official Land Values for 2017

The government has released its official land values for 2017, with figures indicating an increasing polarization between regional areas where population decline appears unstoppable and major cities where foreign tourists have been on the rise and urban redevelopment has provided an economic boost.

Prices seem to be overheating and causing a “mini bubble” in some big cities, such as Osaka, while land value disparities are becoming increasingly conspicuous among regional areas.

Osaka Booming

Osaka, which sees large numbers of foreign tourists, stands out in the recently announced report.

The nation’s top five locations in terms of the rate of increase in the value of commercial land were all in central Osaka — shutting out Tokyo’s Ginza district and other famous locations. The sharpest rise across the nation was 41.3 percent, recorded in the Dotonbori district in Chuo Ward, Osaka.

One head of a major real estate company who is in charge of condominium development said the extreme increases are the result of overheated booms, “Property agencies are scrambling for land plots with good conditions,” the official said. “Sellers expect hotels to be built on their land, and so in some cases ask for prices nearly double what we anticipated.”

Osaka is close to Kyoto, Kobe, Nara and other popular tourist destinations, and an increasing number of low-cost carriers have opened routes to and from Kansai Airport.

Hotels are being constructed one after another in Osaka due to an expected increase in foreign tourists. In 2016, the 84.1 percent occupancy rate of hotels and other accommodation facilities in Osaka Prefecture was the highest in the nation. Furthermore, land prices in Osaka have long been more attractive for investors than in central Tokyo.

Further north, demand from foreign tourists for hotel rooms has also been high in Nagoya, with the openings of nearly 30 new hotels scheduled from 2016 to 2019.

Hakodate Enjoys Growth

It has been one year since the Hokkaido Shinkansen bullet train line opened. In Hakodate, the number of tourists has been increasing at its fastest-ever pace. Consequently, commercial land prices near train stations in the city have risen.

Teiichi Matsuda, chief of the secretariat of the federation of business cooperatives operating stores at the Hakodate Asaichi morning market, has high hopes for hotel development in the city. “We will surely be able to accept more tourists if accommodation facilities increase,” he said.

In Tokyo’s Ginza district — where land values have surpassed those seen in the bubble economy period spanning the latter half of the 1980s to the early 1990s — urban redevelopment projects are under way ahead of the 2020 Tokyo Olympic and Paralympic Games.

Many regions still stagnating

On the other hand, many regional areas continue to be unaffected by the boom. There are concerns in Akita Prefecture about the shrinking and graying population. Residential land prices in the prefecture fell 2.7 percent on average, while commercial land prices fell 3.2 percent — the highest respective rates of decline in the nation.

Prefectural government’s enhanced efforts to attract companies by offering subsidies have not brought major positive effects.

Land values outside the three metropolitan areas of Tokyo, Osaka and Nagoya have fallen at slower rates. In those regional areas, both residential and commercial land values have now been falling for 25 years.

Land values fell in about 60 percent of the surveyed regional areas, and sadly a recovery in land values in these areas remains unlikely.

However, even within such areas, land values increased in towns with excellent tourism assets and tourism brands. The town of Karuizawa in Nagano Prefecture is famous as a summer retreat. Residential land values in the town rose 3.2 percent — up on the previous year’s 2.3 percent — with demand for second homes high mainly among wealthy people in the Tokyo metropolitan area.

“The polarization trend is likely to continue not only between urban and local areas, but also within municipalities,” said Takashi Ishizawa, a senior analyst at Mizuho Securities Co.

Investments decline in central Tokyo

Although commercial land values mainly in cities have made remarkable recoveries, the trend in central Tokyo — which has typically symbolized the nation’s rising land values — is changing.

According to the Japanese unit of real estate service company Jones Lang LaSalle Inc. (JLL), the total trading value of commercial real estate in the nation in 2016 was about ¥3.7 trillion — a fall of about 11 percent from the previous year.

This was largely because real estate prices mainly in central Tokyo had risen excessively, making it difficult for investors to earn profits.

This year, the nation’s most highly appraised land is in Tokyo’s Ginza district, specifically where Yamano Music Co.’s flagship store is located, at ¥50.5 million per square meter. That figure is about 30 percent higher than the peak value in the bubble economy period, when real estate investments were overheated.

A senior official of a major real estate company said, “Prices of prime land in central Tokyo have risen to levels that are hard for us to afford.”

The yen’s appreciation last year compounded the feeling that land prices are too high. That led to a decrease in investments from overseas and sluggish real estate trading conditions.

JLL analyst Yuto Ohigashi said, “Investment funds will flow into cargo distribution facilities, hotels and major regional cities, which can generate relatively high yields.” It seems this has been a contributing factor in the rise in commercial land prices in Hiroshima and other major regional cities, in addition to central Osaka.

On the other hand, housing investment has been brisk, helped by banks looking to actively extend real estate loans to customers.

The sizes of the real estate loans given out by banks, which are struggling with falling interest rates, have been relatively large. They can expect sizable revenues from the interest on those loans.

The increasing construction of homes for rent, part of a tactic used by people seeking to reduce their inheritance tax payments, is another factor behind the accelerated extension of real estate loans. It is predicted that the number of households in the nation will start decreasing after peaking in 2019. Some economists are warning that the current situation may result in a “house-for-rent bubble.”