A sudden rebound of real estate stock prices

A sudden rebound of real estate stock prices

Since mid-October, real estate stock prices began to rise suddenly. Industry leader Mitsui Fudosan stock prices saw a record 10 day consecutive rise until the 27th. Other real estate giants also saw price rises above previous highs. The reason for these rises is that newspapers reported "Nomura Real Estate achieved approximately 80% of their expected contracts for the current fiscal year as of September" (Nomura end their financial year in March, meaning half of the financial term still remains), although the details are as of yet unknown. Until this point, real estate stocks had been in a slump for over a year. Mitsui Fudosan stock prices had largely been falling from August of 2015 until the same time this year. Since then they had continued to remain low. Other real estate stocks saw similar price movements.

There are several reasons for this slump. First, there were indications that condominium sales had peaked out. The number of units sold in the metropolitan area decreased for 9 consecutive months until August of 2016 (According to the Real Estate Economic Institute). The stock of units also began to gradually increase, making it harder to predict the next financial term's situation. Further, one reason might be that the real estate index may have caused wariness of high prices (although this was already the case last year). It could also be that the expected office building construction rush from 2018 onwards has caused investors to move away from real estate stocks.

What seems likely to be the biggest cause, is that the Japanese economy has failed to shift to currency inflation. Since the start of the second Abe regime in November of 2012, real estate stocks were bought with the expectation that the economy would switch to inflation until mid-2015. In the past year, these expectations have fallen away, and it seems these stock sales are a reaction to this.

The current situation surrounding real estate stocks certainly isn't the best. However, it isn't all doom and gloom. In September, the sales of condominiums increased for the first time in 10 months. Also, this was a huge increase at 49% more than the same month last year, and 74.2% over the previous month. In addition to a continuing upward trend for Tokyo land prices, some speculate that there is also funding flowing into the market from the Government Pension Fund of Norway or oil money that has been replenished by increased investment due to high oil prices.

The government and the Bank of Japan have likely not abandoned their idea of using increased asset prices such as stock and real estate to reach their goal of inflation. If in the future there is a clear indication of a switch to inflation, real estate prices themselves, as well as real estate stock prices might well see a big increase.