Sales of new condominiums in Tokyo have fallen to the lowest since the property bubble collapsed in the 1990s, a sign the real estate boom fueled by Bank of Japan easing is starting to unwind.
New apartment sales in and around the capital fell 32 percent to 13,303 units in the first eight months of the year, the least since 1992, data from the Real Estate Economic Institute Co. show. Potential buyers, faced with almost stagnant wages, are turning down 35-year fixed-interest mortgages as low as 1.06 percent, near the record low of 0.9 percent in August, according to data from the state-run Japan Housing Finance Agency.
“Stagnation in wages is why we are seeing a slowdown in sales of condominiums” in Tokyo, said Takashi Ishizawa, a senior researcher at Mizuho Securities Co. “If you look at interest rates, historically speaking there has never been a better time to buy, but developers without really good properties are having trouble selling.”
The real estate market’s boom has been one of the few bright spots for the world’s third-largest economy, and its slump could deepen the nation’s deflationary mindset. The BOJ’s move to target the yield curve last month will probably trigger higher mortgage rates and weigh on apartment prices, according to a report by Credit Suisse Group AG.
The central bank’s adoption of a negative-rates policy in January misfired as the yen strengthened against the dollar, hurting corporate profits and making Japanese companies even more cautious about raising wages, according to Natixis SA.
Individuals have been cutting spending as the outlook for the Japanese economy becomes more uncertain. They are less willing to buy apartments in Tokyo at current price levels, according to the Real Estate Economic Institute.
If Japan fails to boost wages, it will be difficult for it to spur growth, the International Monetary Fund warned last month.
The average price of a Tokyo condominium climbed to a 15-year high of ¥63.28 million in November last year, and prices remain 3.8 percent higher than in 2015. Base wages in Japan are only up 0.2 percent in 2016.
“When wage growth is flat, you reduce purchasing power, and then you have weaker consumption,” said Kohei Iwahara, an economist at Natixis in Tokyo. “It will make it even more difficult for the Bank of Japan to achieve its inflation target.”
In last month’s policy review, the BOJ said lenders may become more reluctant to extend loans if sub-zero rates were to excessively reduce their earnings. BOJ Gov. Haruhiko Kuroda told reporters the central bank still has the option of lowering interest rates further if needed. Japan’s benchmark 10-year government bond yields minus 0.055 percent, after falling as low as minus 0.3 percent in July.
“What I think is very dangerous is the presence of negative interest rates” in Japan, said CME Group senior economist Erik Norland. “Negative interest rates are meant to ease monetary policy but they seem actually to have the perverse impact of unintentionally tightening monetary policy.”