Land prices have been rising moderately, but their prospects are uncertain. The government needs to keep an eye on the impact of the new coronavirus as infections spread.
The Land, Infrastructure, Transport and Tourism Ministry announced official land values as of Jan. 1, showing that the national average value of land for all purposes rose 1.4% from the previous year, marking the fifth consecutive year of increase.
Residential land prices were supported by the solid performance of housing sales due to low interest rates and the improved situation of employment and wages. Commercial land prices have recovered thanks to brisk demand for office space and an increase in foreign visitors to Japan.
Japan has long suffered from asset deflation following the burst of the economic bubble. Land prices are known as a barometer of economic vitality. Their steady rise would benefit the economy as a whole.
It is notable in the latest figures that, without considering the four major regional cities of Sapporo, Sendai, Hiroshima and Fukuoka, the value of land for all purposes in regional areas took an upward turn for the first time in 28 years. Land prices have proved to be steadily recovering in regional areas, which should be welcomed.
However, these data are from before the outbreak of the new virus. It remains unpredictable how land prices will be affected by the stagnation in business activity.
Visitor numbers to Japan have declined and people voluntarily refrain from going out or holding events, which have caused sharp reductions in sales mainly in the service industry.
If there is any delay in normalizing the situation, increasing demand from small and midsize stores for deferment or reduction of rent payments could emerge. The decline in real estate profits will put downward pressure on land prices.
Wealthy Chinese people and foreign-capitalized companies are also expected to put the brakes on purchasing real estate for investment purposes.
The index of real estate investment trusts (REITs) that receive investment funds has been on a downward trend since February. There seems to be widespread concern over the uncertain outlook for land prices and rent.
In particular, tourist spots will be hit hard because they are highly dependent on visitors to Japan. Many regions ranked on the list of areas that marked a high rate of increase in the latest official land values bustle with foreigners; these include Kutchan, Hokkaido, which is home to the Niseko ski resort, and Okinawa and Osaka prefectures.
Land prices have jumped nearly 60% from the previous year in some areas against the backdrop of resort demand, where the situation is depicted as a localized "minibubble."
If a decrease in the number of visitors to Japan triggers a large drop in land prices, regional economic disruption must be inevitable.
There are also some areas where moves have emerged to freeze construction projects for hotels and postpone business negotiations, according to major companies.
Local governments must keep an eye on trends in development projects and land prices.
The major premise for stabilizing land prices is, of course, an early normalization of business activities. The central government should do its best to stop the spread of infection.
-- The original Japanese article appeared in The Yomiuri Shimbun on March 19, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
