22 January 2014
Australian Financial Review
Japan wants to trigger a jump in inner city property prices by loosening building restrictions in test zones in the latest phase of Prime Minister Shinzo Abe’s inflation-led economic renaissance.
A key government adviser Tatsuo Hatta said in an interview: “Central-city property prices will likely rise when various plans are announced.”
Mr Abe is trying to sustain an economic rebound that risks losing steam in April when a sales-tax increase will dampen consumer spending. While Mr Hatta’s comments offer some insight into the government’s plans for special economic zones, investors are still waiting for fuller details of Abe’s growth strategy in what Goldman Sachs calls a critical year for Abenomics.
Doubts are growing about the government’s ability to meet a 2 per cent inflation target, with Pacific Investment Management Co no longer favouring Japanese government bonds that benefit from consumer price gains as it predicts Abenomics won’t generate 2 per cent inflation.
Tomoya Masanao, head of portfolio management for Japan at the operator of the world’s biggest bond fund, said a year ago that so-called linkers were a good play, citing Mr Abe’s plans for wide-ranging stimulus measures to stoke economic growth.
Home prices in Tokyo are around 120,000 yen to 150,000 yen per square foot ($1300 to $1600), Chicago-based Jones Lang LaSalle said last year. That compares with about 280,000 yen to 400,000 yen in Hong Kong and 200,000 yen to 250,000 yen in Singapore, it said.
According to Mr Hatta, the changes will make it easier to construct residential buildings in business districts in designated zones, creating opportunities to improve urban planning and make cities more enticing for employees of foreign companies.
The bursting of a bubble in the share market (which peaked in 1989), and a real-estate market bust in the 1990s, saddled banks with bad loans, plunging Japan into a deflationary slump that it’s still trying to shake. Tokyo’s real-estate market has started to rebound as Abe tries to end the deflationary malaise that began with stock and property bubbles bursting more than two decades ago.
While prices in some cities picked up after former Prime Minister Junichiro Koizumi cleaned up the banking system in the early 2000s, a sustained rebound has been elusive. Nationwide residential real-estate prices at the end of September were down 51 per cent from a peak in 1991.
Introducing special economic zones is a cornerstone of Mr Abe’s effort to create opportunities for Japanese companies, along with steps to boost industrial competitiveness and open up the country more to international trade.
The government may decide in March where it will locate the special zones, MrAbe said on January 7.
The council will decide on criteria for selecting these areas at its next meeting expected to be held at the end of January or early February, Mr Hatta said.
Tokyo’s real-estate market has started to perk up, helped by unprecedented monetary easing by the Bank of Japan and the city’s successful bid to host the 2020 Olympics. The monthly average vacancy rate in Tokyo business areas fell to 7.34 per cent at the of December from 8.67 per cent a year earlier and 9.01 per cent at the end of 2011, according to data from Miki Shoji Co.
The real-estate sub-index of Japan’s benchmark Topix of shares climbed about 62 per cent over the past year, outpacing a 43 per cent gain in the Topix index.
Loosening rules on residential construction in business districts would create more demand for education, medical and other services in those areas, Mr Hatta said. “The focus, as far as attracting foreign nationals is concerned, is to make living in city centres comfortable.”
Courtesy of the Australian Financial Review