The Japanese land market according to public prices - Osaka's strength stands out, but will this upward trend continue?

The Japanese land market according to public prices
- Osaka's strength stands out, but will this upward trend continue?

On the 21st of March, the Ministry of Land, Infrastructure, and Transport announced the public land prices as of January 1st 2017. For all applications including residential and commercial use, etc, there was an average national rise of 0.4% compared to the previous year. While we mentioned last time that 2016 saw a positive figure (0.1%) for the first time in 7 years, this time it appears that this increase was maintained. Further, residential use escaped from minus figures for the first time in 9 years, with almost no change (0.02% increase). Commercial use followed its previous rise of 0.9% with a 1.4% increase maintaining its favourable status. When broken down by prefecture, while some areas such as parts of Tohoku have fallen, there seems to be a lessening of these downward trends. It would appear that Japanese land prices have finally pulled out of their long "tunnel of loss" which has continued since the Lehman Shock.

One interesting characteristic of the new public land prices is the success of regional cities such as Osaka or Nagoya. The three large metropolitan areas (Tokyo, Osaka, and Nagoya) saw an overall average increase of 1.1%, the same as the previous term, but commercial land saw Osaka (4.1% increase) outperforming Tokyo (3.1%) in terms of change. In particular, the popular tourist area around Dotonbori saw record increases of over 40% compared to the previous year.

Furthermore, Osaka's strength also stands out in the "ranking by increase by area" for commercial land. Last time, Nagoya city ranked 3rd and 5th here, but this time Osaka monopolised all top 5 places with Shinsaibashi in Osaka Chuo ward taking the top spot. Particularly impressive was the fact that one location in Kyoto's Higashiyama ward ranked 6th place with an increase of 29.2%. The location is just west of Yasaka Shrine where "Gion Festival", one of Japan's top 3 festivals, is held.

On the other hand, residential area rankings by increase saw 7 of the top 10 places made up of locations in Miyagi prefecture. It seems that the increase convenience and access due to the opening of the Tozai subway line in December of 2015 had a major influence.

In response to the new public land prices, the tone of some parts of the media is essentially that "Real estate money flowed from Tokyo to regional areas". It is certainly true that Tokyo's land prices are high and are developing, so it seems that investment aimed at relatively more affordable properties is being distributed to local areas. However, each of the top ranked in terms of "pure price" such as Tokyo's Chuo, Chiyoda, and Shinjuku wards, as well as the overall top, Chuo ward's Ginza 4-5-6 (Yamano Musical instruments) at a 25.9% increase have seen double digit rises across the board. Essentially, rather than it being a case of "Investment money has flowed from Tokyo to local areas", it appears to be more the case that "Taste for investment in local cities has seen a relative increase.

Incidentally, the public land prices at the time of the 1988 real estate bubble saw an overall average increase of 21.7% compared to the previous year, with Tokyo reaching a 65.3% increase (according to Nihon Keizai Shinbun).

Looking at the prices this time, the increases are relatively small scale with the former at 0.4% and the later at 1.3%. In recent years, while there are those who worry about another Tokyo land and real estate bubble, as far as land prices are concerned (ignoring any debate as to what exactly constitutes a bubble), the doesn't seem to be any such indication.

In the areas popular with foreign tourists in the above mentioned "ranking by increase by area", retail stores, hotels, and food and drink shops, etc. have been opening one after another. Due to this, land and real estate demand has been tight, causing prices to rise. Considering this, it seems there will continue to be significant rises in popular tourist areas,

*All data in brackets come from “The official announcement of land prices 2017” by the Ministry of Land, Infrastructure, and Transport (MLIT).