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"Mini-bubble" rises in Tokyo's land prices burst. Down to the 2005 levels

3, 11. 2008

   Tokyo's land prices don't stop going down. Condominiums and detached houses in the areas where land prices have rapidly rising in the past remain unsold, and price decline is becoming conspicuous. A survey revealed that the prices are declining in nearly half of the residential areas in the Tokyo metropolitan areas. Akiyoshi Inoue, president of the real estate evaluation company Sanyu Appraisal, noted that "Tokyo's mini-bubble economic expansion has already burst."

Prices down in as much as 49.6% of survey spots

Land prices in central Tokyo also in downtrend
Land prices in central Tokyo also in downtrend

   According to a survey on going prices (as of Jan. 1, 2008) announced by Nomura Real Estate Urban Net on Jan. 18, 2008, land prices dropped in 49.6% or nearly one half of the 125 housing districts (survey spots) in the Tokyo metropolitan area. The percentage represented a sharp rise from the 16.0% in the previous survey conducted in October 2007. The fluctuation rate of the "land prices in housing areas" in the metropolitan area in the Oct.-Dec. 2007 quarter went down 2.1% on the average against the previous quarter. The decrease rate was 0.1% in the previous survey (July-Sept. 2007), and this is why the survey spots where the priced dropped expanded.

   The company conduct the survey in the Metropolitan Tokyo, Tokyo suburbs, Kanagawa Pref., Saitama Pref. and Chiba Pref., and it pointed out that the land prices are currently going down in almost all places in those areas. The survey also shows that two-digit declines seem to have registered in areas where the land prices once showed sharp rises. In the Omote-sando area of Tokyo where the prices shot up at the time of the "Omote-sando Hills" development, for example, registered a reactionary wide price decline.

   Sanyu Appraisal said that the land prices in some areas still show some rises, but they are likely to be hitting the ceiling and destined to turn to a declining trend. The increase rates in Oct.-Dec. 2007 were narrower against a year earlier, it said. The company further said that the office buildings and apartment houses in such area in Tokyo of good conditions as the Chiyoda, Minato, Chuo, Shinjuku, Shibuya, Toshima, Bunkyo and Daito wards are on a declining trend, and the central part of Tokyo is polarizing to sharply declining and other places.

Drop to levels in Oct.-Dec. 2005 when land prices began rising

   The current land price decreases are reactionary to the excessive rise in the real estate prices. In the central part of Tokyo, the properties in such places as Ginza and Roppongi, that attracted foreign funds, were traded in high prices and affected the surrounding areas. High-rise apartment houses and expensive low-rise buildings are being constructed even now, but the supply-demand is already unbalanced. Inoue noted that the building rush of apartment houses of late was not a reaction to rising demand. The construction was going on in disregard of demand trend like the time of the bubble economy, and the supply was excessive, he said. He further noted that the prices were spiked by those in the supply side. The land price decline became stubborn as the situation was overlapped by the subprime loan problem and the decrease in the housing starts as a result of the amendment in the Building Standards Law.

   The crude oil price increases, commodity price rise, declining business condition and wages that are not going up were also other factors to push down the land prices. In short, the income of the buyers and the real estate prices went out of balance.

   Is it possible that the land prices will turn to an uptrend again? "There is no way except adjusting the supply-demand balance. The current price decline seems to go on until the prices get down as low as the levels registered between October and December in 2007, when the land prices were beginning to rise," Inoue said.

   For a reference, the official land prices in the residential districts in Tokyo averaged about 740,000 yen per a square meter in Meguro Ward in 2007. It was about 500,000 yen in 2005.

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