New government data indicates that the recovery of land prices — which were long depressed after the collapse of the asset-inflated bubble boom in the early 1990s — is finally spreading beyond Japan’s big metropolitan areas. Along with the ultra-low interest rate conditions under the Bank of Japan’s monetary stimulus programs, steady improvement in the job market under Abenomics policies has been contributing to strong housing demand in convenient locations. Inbound tourism — which continues to expand sharply under the government policy of promoting the sector as a key growth industry — has meanwhile sustained robust demand for hotels and shops that has sparked sharp gains in commercial land prices in many parts of the country.
Hopes are emerging that the upward trend in land prices will be sustained beyond 2020, when Japan hosts the Summer Olympic and Paralympic Games in Tokyo. As far as property prices go, the data as of Jan. 1 suggests that the policies taken so far are bearing fruit.
According to the Land, Infrastructure, Transport and Tourism Ministry, the average commercial land price across the nation gained 1.9 percent from a year ago for the third annual rise in a row, while residential land prices picked up 0.3 percent — an improvement from the 0.02 percent increase last year. Of the 26,000 sites surveyed nationwide, prices rose for 41 percent, outnumbering the 38 percent where prices fell. It was the first time this has happened in 10 years.
Land prices have been scraping the bottom in regional areas outside of the three major metropolitan areas around Tokyo, Nagoya and Osaka. But the average price of commercial land in these areas rose 0.5 percent for the first increase in 26 years. While the core regional cities of Sapporo, Sendai, Hiroshima and Fukuoka led the recovery with an average land price increase of 7.9 percent — much faster than in the Tokyo, Nagoya and Osaka areas combined — several other prefectural capitals such as Morioka, Iwate Prefecture and Takamatsu, Kagawa Prefecture, also experienced their first pickup in land prices since the end of the bubble boom. Average prices in the metropolitan areas around Tokyo, Nagoya and Osaka, as well as the four core regional cities, have gone up five years in a row.
A major factor behind the recovery is the demand related to the thriving tourism industry. The continuing steep rise in the number of foreign visitors to Japan — which rose 19 percent to a record 28.7 million last year — has driven up demand for land for construction of hotels and shops that meet the needs of the tourists. Emblematic of the trend is the fact that the town of Kutchan, Hokkaido — home of the internationally popular Niseko ski resort — marked the sharpest rise in commercial land price nationwide with a 35.6 percent gain. The second-sharpest gain was recorded in the Dotonbori area of Chuo Ward, Osaka — another popular tourist destination — where property prices rose 27.5 percent. The rise in commercial land prices in Kyoto, also popular among foreign travelers, was even faster than in Tokyo.
Many of the municipalities where land prices are on the rise are also experiencing a net population inflow. Local governments in rural depopulated areas would be wise to develop strategies to beef up their tourism industry and attract more inbound tourists as a key measure to reverse the population outflow, and the national government should keep up and expand its policies to draw in visitors.
At the same time, the data on land prices point to a growing polarization of trends within the nation’s regional economies. In many prefectures, prices of land in the central parts of the capital city have gone up as more elderly residents move from their suburban homes to condominiums in convenient locations close to key train stations, while declines in land prices remain steep in areas where public transportation services are poor. Among the land survey sites outside of the three big metropolitan areas, 52 percent continued to experience falling land prices, with real estate investments stagnant in many rural areas that suffer from population exodus and aging.
But that is going to be inevitable. Population declines in rural areas will lead to further cuts in public transportation services, likely pushing down prices of local property and leaving more houses and land plots vacant and deserted. It is a problem that needs to be addressed by making rural cities and towns more compact in response to the population declines — by consolidating community functions in city centers so that administrative services for residents can be sustained more efficiently.
Amid the decline in the nation’s population, the way people live and build communities is changing — and that manifested itself in the latest land price data. In policy terms, that means a lot more than the mere increase in land prices.
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