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Abe eyes land-price reflation in zones to spur building boom

by Chikako Mogi

Bloomberg

Japan wants to trigger a jump in inner-city property prices by loosening building restrictions in test zones under “Abenomics,” a government adviser said.

“Central-city property prices will likely rise when various plans are announced,” Tatsuo Hatta, 70, a member of a government council on special economic zones, said in an interview in Tokyo last week. The economic impact from the urban-planning changes will be “extremely big,” he said.

Prime Minister Shinzo Abe is trying to sustain an economic rebound that risks losing steam in April when a sales-tax increase will dampen consumer spending. While Hatta’s comments offer some insight into the government’s plans for special economic zones, investors are still waiting for fuller details of Abe’s growth strategy in what Goldman Sachs Group Inc. calls a “critical year” for Abenomics.

Home prices in Tokyo are around ¥120,000 to ¥150,000 per sq. foot (0.09 sq. meter), Chicago-based Jones Lang LaSalle said last year. That compares with about ¥280,000 to ¥400,000 in Hong Kong and ¥200,000 to ¥250,000 in Singapore, it said.

According to Hatta, the changes will make it easier to construct residential buildings in business districts in designated zones, creating opportunities to improve urban planning and make cities more enticing for employees of foreign companies.

The bursting of a bubble in the stock market, which peaked in 1989, and a real-estate market bust in the 1990s saddled banks with bad loans, plunging Japan into a deflationary slump that it’s still trying to shake. Tokyo’s real-estate market has started to rebound as Abe tries to end the deflationary malaise that began with stock and property bubbles bursting more than two decades ago.

While prices in some cities picked up after former Prime Minister Junichiro Koizumi cleaned up the banking system in the early 2000s, a sustained rebound has been elusive. Nationwide residential real-estate prices at the end of September were down 51 percent from a peak in 1991.

Introducing special economic zones is a cornerstone of Abe’s effort to create opportunities for Japanese companies, along with steps to boost industrial competitiveness and open up the country more to international trade.

The government may decide in March where it will locate the special zones, Abe said on Jan. 7.

The council will decide on criteria for selecting these areas at its next meeting expected to be held at the end of January or early February, Hatta said. There will be a maximum of five zones, with one or two “virtual” areas and the rest in big cities, he said.

Tokyo’s real-estate market has started to perk up, helped by unprecedented monetary easing by the Bank of Japan and the city’s successful bid to host the 2020 Olympics. The monthly average vacancy rate in Tokyo business areas fell to 7.34 percent at the end of December from 8.67 percent a year earlier and 9.01 percent at the end of 2011, according to data from Miki Shoji Co.

The real-estate subindex of Japan’s benchmark Topix of shares climbed about 62 percent over the past year, outpacing a 43 percent gain in the Topix index.

Japan’s commercial real-estate transaction volume jumped 41 percent in the October-December period from the previous quarter, led by Japan Real-Estate Investment Trust activity, according to DTZ Research. Sales of commercial property more than doubled last year to ¥3.54 trillion, the highest since 2007, it said in a research note this week. Commercial property includes office buildings, shopping malls and distribution centers.

Loosening rules on residential construction in business districts would create more demand for education, medical and other services in those areas, Hatta said.

“Labor and other issues are more important and will have an impact over the long term, but this will have a strong impact in the short run,” Hatta said of the building deregulation. “The focus, as far as attracting foreign nationals is concerned, is to make living in city centers comfortable,” Hatta said.