Major homebuilders are suffering an unexpectedly prolonged and deep slowdown in orders for custom-built homes, following a rush of demand toward the end of September last year, when a special exemption from the higher consumption tax ended.
While the tax rate was raised from 5 percent to 8 percent at the start of this month, the government allowed the lower tax rate to be applied to custom-built home contracts signed by the end of September, including those with deliveries after the tax hike.
Thanks to the measure, major homebuilders enjoyed year-on-year growth of up to some 70 percent in the value of new custom-built home contracts last September. Over the next six months, however, new contracts fell heavily.
In March, new contracts slumped 34 percent at Sekisui House Ltd. and Mitsui Home Co. Other firms also suffered double-digit falls.
Homebuilders were initially optimistic about the tax hike-related slowdown, counting on additional relief measures by the government as well as the improving economy. Sekisui House Chairman Isami Wada had predicted that the slowdown would last no longer than three months.
But the optimism is now gone. Since last October, homebuilders have offered low-cost homes, as well as homes with high-capacity solar panels and enhanced aseismic capacity. Demand has not yet recovered, however.
“The situation is worse than we had expected,” Sumitomo Forestry Co. Chairman Ryu Yano said. “Unless we do something about it, double-digit falls (in new contracts) could continue.”
The custom-built homes market is now unlikely to rebound anytime soon. Without fresh incentives, “many consumers feel no need to hurry purchases now,” a Sekisui Chemical Co. official said.
Yoji Otani, senior analyst at Deutsche Securities Inc., said that new custom-built home contracts are likely to continue suffering year-on-year falls at least until the end of this year.
Viewing housing investment as a pillar of domestic demand, with a slowdown having a serious impact on the overall economy, the Japan Federation of Housing Organizations plans to ask the government for additional steps to encourage potential homebuyers.
Specifically, the federation is expected to call for raising the limit for tax-free fund donations from parents to their children for home purchases and further expanding the existing housing loan tax relief.
Yet, the government may not be very sympathetic to homebuilders, as the demand surge ahead of the consumption tax hike helped them enjoy solid earnings.