The land and infrastructure ministry reported on March 18 that both residential land prices and commercial land prices in the Tokyo, Nagoya and Osaka megalopolises increased in the 12 months to Jan. 1, marking the first rise of both land prices in six years. These areas saw the average residential land prices rise 0.5 percent and the average commercial land prices go up 1.6 percent.

Outside the three megalopolises, both residential and commercial land prices increased in Sapporo, Sendai, Fukuoka, Kusatsu in Shiga Prefecture and Naha in Okinawa Prefecture. However, land prices declined at about 75 percent of the survey locations in nonmetropolitan areas.

Except for last-minute purchases before the consumption tax raise from April 1, most of the land price rises is believed to have been caused by investment and real demand that reflect expectations of a recovery under the Abe administration’s economic policy.

Land prices shot up around 10 percent in some bay areas in Tokyo, which are close to facilities for the 2020 Olympics. The rises are smaller than during the mini-bubble that preceded the Lehman Brothers shock. But if such land price rises continue, it must be judged as a result of speculative buying. It is important to closely watch the movement of land prices in areas that have shown remarkable increases this time.

The Abe administration’s economic policy and the Bank of Japan’s quantitative monetary easing apparently contributed to land price rises not only in the Tokyo, Nagoya and Osaka metropolitan areas but also in regional core cities such as Sapporo, Sendai, Hiroshima and Fukuoka, and other major local cities like Shizuoka, Hamamatsu and Kumamoto. It is likely that funds from abroad and funds from wealthy people who benefited from high stock prices flowed into the real estate market in big cities.

One of the factors behind the land price rises is the flow of funds from the J-REIT (Japan real estate investment fund) financial instruments and from abroad into the real estate market, partly due to the Bank of Japan’s quantitative monetary easing. Wealthy people who benefitted from the cheap yen and high stock prices also started investing their funds in high-status residential areas and commercial areas in the three metropolises.

The total value of assets bought in 2013 for J-REITs, in which rents from purchased office buildings and commercial facilities are distributed to investors, topped ¥2.2 trillion, a record amount and nearly three times the corresponding figure in 2012. It appears that the investment destination has spread to regional core cities, where real estate prices are relatively cheap.

But the general trend in land prices is polarization, which is characterized not only a gap between metropolitan areas and nonmetropolitan areas but also a gap between core cities having convenient access and other places within nonmetropolitan areas. Land price falls lead to a decrease in real estate tax revenues for local governments.

It will be imperative for local governments to make efforts to raise the value of land by helping improve facilities related to medical, social welfare and education services and tourism or by concentrating urban functions in city centers to increase convenience for local residents.