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Japan’s Land Prices Show First Rise in 16 Years

Yesterday, the Ministry of Land, Infrastructure and Transport released a report showing that efforts by investors to buy land in Japan’s three largest cities have driven the nation’s average land prices up for the first time in 16 years. According to the report, price increases in Tokyo, Osaka and Nagoya made up for for declining land prices elsewhere in the country.

For the nation as a whole, residential land prices edged up 0.1% while commercial land showed an average gain of 2.3%. In rural areas, land prices declined by 2.8% on average.

In Japan’s three largest cities, however, residential prices rose 2.8% and commercial land prices increased 8.9%. In Tokyo, prices increased an average of 9.4%. Hiroshi Shiraishi, an economist at Lehman Brothers told the media, “It may be some years before the regions properly experience the same sort of increases.”

On a television program this morning, newscasters placed 1 square meter-sized mats in areas of Minami Aoyama in downtown Tokyo, discussing how much that square of land would cost on the open market. Although program host (and non-economist) Mino Monta suggested that a new bubble might be in the making, vice finance minister Hideto Fujii has publicly disagreed, asserting that there is no risk of an asset bubble.

The Ministry of Land, Infrastructure and Transport has acknowledged the role of foreign buyers in the price increase, as firms such as Morgan Stanley and the Goldman Sachs Group have been attracted to land assets by low interest rates, the recent economic recovery, and reforms in the financial sector that allow for more attractive forms of loan securitization.

Although some say this may provide the Bank of Japan with leverage to raise interest rates once more in 2007, the Bank itself has been cautiously vague on the subject, saying it is “necessary to watch future developments in the realty markets and their effect on the financial system.”

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