Friday, March 22, 2013
Urban Land Leading Breakout From Deflation
TOKYO (Nikkei)--Land values are rousing themselves from deflation sooner than prices of goods or services, but only in big cities and largely because of speculative investment.
Gains in the Tokyo, Osaka and Nagoya areas, which have made progress on large office buildings and commercial redevelopment, have slowed the nationwide decline in land values. In the Tokyo area this year, 606 sites rose in value from a year earlier, according to a Land Ministry survey as of Jan. 1. Last year, just 93 improved.
A site in a redevelopment zone west of the JR Kawasaki Station jumped 11.9% in value, the biggest gain of any commercial site nationwide. The renovated Lazona Kawasaki Plaza shopping mall, a big attraction in the neighborhood, bustles with shoppers. Nearby, an office building for Toshiba Corp. (6502) is under construction. As many as 7,000 people will begin working there this fall.
Many companies are moving their offices to newer, more energy-efficient and disaster-resilient buildings with open-plan floors. The office vacancy rate for central Tokyo has fallen to the mid-8% level, the lowest in about three years, according to Miki Shoji Co. The Otemachi Financial City South Tower, completed last fall, is close to full occupancy.
Expectations for Prime Minister Shinzo Abe's economic agenda, nicknamed "Abenomics," are supporting real estate investment. Much of this money is coming from individuals and flowing into real estate investment trusts.
So far this year, REITs have announced property acquisitions worth about 850 billion yen. This is already more than the 780 billion yen in deals they logged in 2012 and close to the 2008 total of about 1 trillion yen. Many REITs, such as Nippon Building Fund Inc. (8951), are looking to add to their property portfolios now, reckoning that land prices are near bottom and rents are ready to rise.
Meanwhile, a weakening yen is making Japanese property look more attractive to foreigners. Wealthy Asians are pouncing on luxury digs in the heart of Tokyo. Sinyi Realty Inc., a Taiwanese real estate broker, expects a 50% increase in property referrals in Japan this year, according to its Japanese office.
Homebuilders are getting ready for what they expect to be a rush of housing purchases ahead of a consumption tax hike in April 2014. Some buyers have other reasons.
"Interest rates might go up if the economy doesn't get better with Abenomics," says a man who recently bought a two-family home in Tama outside Tokyo.
Speculative investment alone is unlikely to stop the decline in land values. The high-flying REIT market has been sustained by hopes for an upturn in offices rents. But for now, rents in central Tokyo are still edging down. Unless the real economy improves and rekindles rent inflation, REIT inflows could weaken.
(The Nikkei, March 22 morning edition)