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Land price statistics as of Jan. 1, announced by the Land, Infrastructure and Land Ministry, show that at least three of the nation’s major urban areas plus some other areas have emerged from a long tunnel of real-estate price deflation. The trend is supported by increased demand for office space and investment in urban redevelopment projects due to the recovery of the Japanese economy. But land price increases in some areas do not necessarily reflect increases in normal returns from real-estate investment. Their movements need to be watched carefully to avoid a return of asset inflation.

Commercial-area land prices in the greater Tokyo, Osaka and Nagoya regions, which include adjacent areas around the three megalopolises, registered an average 1 percent increase for the first rise in 15 years. Sapporo saw land prices rise in both commercial and residential areas, as did many survey locations in Sendai, Hiroshima and Fukuoka.

In areas excluding the three metropolitan regions, however, commercial-area land prices registered a 5.5 percent drop and residential-area land prices, a 4.2 percent drop. Although prices went down, the rate of decline has tapered off for two years for both categories.

Average real-estate prices for the entire nation registered a decrease for the 15th straight year, dropping 2.7 percent for both commercial and residential areas. But the rate of decline has fallen for four years in commercial areas and three years in residential areas. Only one prefecture — Kumamoto Prefecture — saw commercial-area land prices fall more sharply than in the previous year, compared with seven such prefectures in 2005.

Nationwide, commercial-area land prices are now at the level of around 1970, and residential-area land prices are at the level of 1986. In the last half of the 1980s, funds poured into speculative land purchases with the anticipation of further gains, thus causing soaring spirals. After the bubble burst, loans extended by banks for land speculation soured — a factor that led to a decade-long stagnation of the Japanese economy.

Compared with the bubble years, it may be said that self-restraint is generally working in real-estate investment. The ministry says that compared with the growth rates of gross domestic product and business enterprises’ equipment investment, overall land prices are moving more slowly. Banks are said to be extra careful when extending loans. Real-estate people say land price rises reflect transactions based on real demand for use of land and buildings. Thus the ministry has concluded that bubbles are not forming.

But a close look at land price movements at specific places does not warrant optimism. Average commercial-area land prices in Tokyo’s Chuo, Shibuya and Minato wards went up by 7 percent, 11.1 percent and 11.2 percent, respectively. Several spots around Omote-sando Avenue in Minato Ward registered rises of about 30 percent. Rises of some 30 percent were also reported around Nagoya Station and about 20 percent around Osaka Station. Eight of the 10 spots that marked the highest rises in commercial areas are concentrated in Nagoya.

Residential-area land prices in the greater Tokyo, Osaka and Nagoya regions went down by an average 1.2 percent. But an 18 percent increase was registered in residential areas of Tokyo’s Minato Ward. Nine of the top 10 spots in terms of rises in residential-area land prices are located in the ward.

The recovery of the Japanese economy certainly has contributed to land price rises in some reas. But the rises also suggest the possibility that excess money stemming from the Bank of Japan’s super-easy money policy and the sluggish stock market found its way into real-estate investment. Some developers report that such money has poured into the three megalopolises as well as into other major cities. High returns are expected from investment in urban-renewal and redevelopment projects in these cities.

The overall situation can be characterized as a bipolarization of land price movements. While active real-estate investment in Tokyo, Osaka, Nagoya and other major cities are pushing up prices in some places, investment is dormant in other cities and the countryside. For example, commercial-area land prices in Aomori and Akita prefecture fell more than 10 percent.

Government authorities concerned need to keep close watch on land price movements in major cities and be ready to take measures to restrain real-estate investment if necessary.

For cities and towns in the countryside, central and local governments need to develop measures to prevent decay of urban centers and make local communities attractive both to enterprises and people.

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