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Land price data released last week highlights the growing divide in parts of Japan outside the top three metropolitan areas around Tokyo, Nagoya and Osaka — between the four major regional cities of Sapporo, Sendai, Hiroshima and Fukuoka on one hand, and the rest of the regional economies on the other. Steep increases in commercial land prices in some areas meanwhile need to be closely monitored as to whether they reflect real demand or have been inflated by speculative investments fueled by the Bank of Japan’s negative interest rate policy, which would not be sustainable and could result in wild ups and downs in prices that would severely disrupt the economy.

On a national average, the commercial land prices in Japan as of July 1 stopped falling for the first in nine years — rising 0.005 percent from a year ago, while residential land prices fell 0.8 percent for the 25th year of decline in a row, although the margin of decline slightly narrowed, according to the Land, Infrastructure, Transport and Tourism Ministry. The ministry attributed the trend to robust construction demand for hotels and shops in response to the continuing sharp increase in the number of inbound tourists, as well as active real estate investments aided by the ultra-easy monetary policy.

But the polarizing trend attests to the uneven growth of Japan’s economy — that the policy advocated by the Abe administration of regional revitalization has yet to revive land prices except in the three biggest metropolitan areas and some major regional cities. Noticeable was the steep upsurge in commercial land prices in Sapporo, Sendai, Hiroshima and Fukuoka, whose 6.7 percent average growth was even sharper than in the greater Tokyo, Nagoya and Osaka areas, where the prices rose 2.9 percent. But land prices in other municipalities in the nation’s regional economies fell 1.5 percent.

Overall, both commercial and residential land prices in regions outside the top three metropolitan areas on average has continued to decline for more than two decades now — although the margin of the fall is shrinking in recent years. The prospect of this trend bottoming out remains uncertain, given the unabated population exodus to Tokyo — particularly among the younger generations — and the nation’s declining and aging population.

In view of more regionally balanced growth of the economy, the increase in prices in the major regional cities may be welcome. But just outside these big cities lie many smaller municipalities that continue to suffer depopulation and declining land prices. In the central Hokkaido city of Bibai — about a 35-minute train ride from Sapporo, where commercial land prices rose 7.3 percent — the population has continued to fall since the shutdown of a local coal mine in the 1970s. It’s now hit 23,000, or roughly a quarter of its peak, and land prices fell 8.8 percent this year —the sharpest among municipalities around the country.

Some municipalities away from the prospering major cities, meanwhile, are improving their prospects by introducing unique policies. Nomi, a city of nearly 50,000 in Ishikawa Prefecture, saw residential land prices rise 2 percent. In the decade since its creation in 2005 through the merger of three smaller towns, the city’s population rose 6 percent as the local administration offered policy measures to attract younger residents, such as free medical services for children up to the age of 18 and subsidies for maternity care and childbirth.

Land prices are determined by the profitability of business operations in each tracts of land. The room occupancy ratio of city hotels in the greater Tokyo, Nagoya and Osaka areas exceeds 80 percent, while retail shop sales in popular tourism areas are surging. The inbound tourism boom — the number of foreign visitors from January through August rose 25 percent from a year ago to 16 million — has certainly contributed to the rise in commercial land prices. The trend is likely to continue as the nation seeks to increase the number of hotel rooms to accommodate more visitors as it prepares to host the 2020 Summer Olympic and Paralympic Games in Tokyo.

Some aspects of the land price fluctuations need to be closely watched, however. In the top three metropolitan areas, the earlier surge in the prices of land and real estate such as high-rise condominiums have led to slowing transactions and a decline in the number of profitable properties, which is believed to have driven investment money, awash as a result of the BOJ’s monetary stimulus, to the major regional cities such as Sapporo, Sendai, Hiroshima and Fukuoka, and sharply pushed up commercial land prices there. It needs to be examined whether the steep rises reflect real demand or are inflated by speculative investments.

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