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Sekisui may meet profit targets on demand spike

Bloomberg

Sekisui House Ltd. said it has seen “strong demand” ahead of tax and mortgage rate increases that could help Japan’s second-biggest home builder meet earnings goals.

“We are getting a good feel about delivering decent results based on our earnings targets,” President Toshinori Abe, 61, said in an interview in Tokyo on Tuesday, adding that back orders for homes are rising faster than the company had anticipated.

Sekisui in March forecast sales to rise 7.8 percent to ¥1.74 trillion in the year ending Jan. 31 from a year earlier. Orders on average for the company gained 15 percent in the first five months to June 30 from the same period last year.

Prime Minister Shinzo Abe’s pledge to end 15 years of deflation have fueled expectations that mortgage rates and land prices, which are about half of what they were after the peak of the bubble economy in the 1980s, will start rising. Housing starts rose for a ninth month in May, the longest streak since the period that ended in February 2011.

A fixed-rate mortgage loan for 35 years rose to 2.03 percent in June from an all-time low of 1.8 percent in April, according to the government-affiliated Japan Housing Finance Agency.

While the government’s plan to raise the consumption tax is spurring buyers to purchase before the increase comes into effect, the government should be careful in how it deals with an expected decline in demand following the change, Abe said. Japan plans to double the tax to 10 percent from 5 percent by 2015, with the first increase to 8 percent scheduled next April.

“It doesn’t make sense to introduce a tax increase when the economy is not yet fully recovered,” Abe said. “What matters to us the most and the country as a whole is economic recovery and revitalization.”

Housing starts nationwide gained 6.2 percent to 893,002 units in the year that ended March 31, the fastest pace since 1996, according to the land ministry. Supplies declined 22 percent in a decade to March 2011 from the previous 10 years, it said.

Tailor-made houses and rental housing have seen “solid growth,” Abe said. The Osaka-based company plans to strengthen its home-building segment by improving its energy-saving and quake-resistant technology to differentiate itself from competitors and to attract more home buyers, he said.