Japanese real estate prices bottom out

A flow of money from stimulus measures by the Bank of Japan is prompting more people to take out mortgages and buy homes, lifting urban land prices and the Japanese economy. A boost in asset prices including property has been a key goal for Prime Minister Shinzo Abe as he rolls out his economic program, with the aim of ending over 15 years of price deflation that has stunted growth in the Japanese economy. Known as Abenomics, the plan for long-term recovery appears to be making headway, supported by the quantitative easing introduced by the new Bank of Japan (BOJ) governor, Haruhiko Kuroda, and a win in the election in the Upper House in an election in July.

Governor Kuroda’s announcement on April 4th that to achieve 2% inflation within the next two years the BOJ would double Japan’s monetary base through unprecedented levels of buying of Japanese government bonds (JGBs) and Real Estate Investment Trusts (REITs) other financial assets, has further helped to boost the commercial real estate market.

The higher demand is starting to show up in gains in property values, which have been rarely seen in Japan as land prices slumped more than 70% following the collapse of the 1980s bubble economy. Data from a quarterly survey by the land ministry covering the January to March 2013 quarter showed rising demand for residential property, particularly in Tokyo, is a primary factor in driving land prices higher. Values rose in 53% of selected locations in Japan’s major cities, marking the first time in five years that prices rose in a majority of the locations.

In addition, a number of key indicators support the outlook for growth in the real estate market. Japan’s gross domestic product expanded an annualized 4.1 percent in the first quarter, while nominal GDP, which is unadjusted for changes in prices, also rose 0.6 percent from the previous three months. In addition, consumer confidence in May was at its highest level since 2007.