Japanese Property Market Quarterly Review, First Quarter 2017-Focus on Coming Large Supply of Offices, Hotels and Logistics Facilities-

1.Economy and Housing Market

Japan’s real GDP growth rate was revised up by 0.1% to 0.3% q-o-q in the fourth quarter of 2016, which also raised the NLI Research Institute GDP growth rate forecast for 2016 by 0.1% to 1.3% y-o-y (Chart-1). The real GDP growth rate for the first quarter of 2017 was 0.5% q-o-q for the fifth consecutive month of positive growth, as business conditions are expected to remain stable backed by the recovery of corporate earnings and capital expenditure.

In the BOJ Tankan Survey, the current business confidence D.I. of both large manufactures and non-manufacturers improved (Chart-2). The D.I. of large companies in the property industry has remained above the 30-point level but the three-month forecast deteriorated to the 28-point level reflecting increasing uncertainty.

Chart-1 Japan GDP Growth Rates/Chart-2 BOJ Tankan Survey

Housing starts have modestly grown y-o-y led by apartments for lease (Chart-3). Regarding loans for building apartments for lease, the Financial Services Agency and the Bank of Japan intend to tighten controls over financial institutions.

The number of new condominium units sold in the Tokyo metropolitan area increased by 10% y-o-y to 7,102 in the first quarter, however, the contracted rate dropped below 70% and inventories have accumulated (Chart-4). New condominium prices have stopped rising and leveled off. Some developers have furnished their units for free to clear their inventories, which suggest that new condominium prices are about to decline.

The transaction volume in the secondary condominium market in the Tokyo metropolitan area remained the same as last year. After rising for years, condominium prices have become too expensive for ordinary people looking for their own home (Chart-5), urging potential buyers to move to the residential leasing market.

Chart-3 Housing Starts/Chart-4 New Condominium Inventory and Sales Y-o-y

Chart-5 Secondary Condominium Transacted Prices

2.　Land Prices

2.Land Prices

Regarding “Kouji Chika,” national land prices, as of January 1, 2017, the average national land price appreciated by 0.4% y-o-y for the second consecutive year of positive growth following seven years of depreciation. The ratio of appreciating monitoring sites increased for both commercial and residential lands while that of depreciating monitoring sites decreased (Chart-6, 7). While the average land price in the major three metropolitan areas and four other large cities, Sapporo, Sendai, Hiroshima and Fukuoka, posted positive growth, the average land price of other local areas continued to moderately depreciate.

The six commercial sites that performed the best nationally all turned out to be in the Kansai area, with the top five sites located in Osaka and the sixth site in Kyoto. Strong demand for hotels and retail stores has lifted commercial land prices backed by the increase in foreign visitors, despite the noticeable shrink in spending volume per visitor. On the other hand, seven of ten residential sites that performed the best nationally turned out to be in Miyagi prefecture, suggesting a steady home demand in recovering areas affected by the Great East Japan Earthquake.

Regarding “Land Value Look Report” published quarterly by MILT, the number of sites with no land price change has increased since the third quarter of 2016 (Chart-8). It appears land price appreciation has lost steam as the land price of only one site with land price appreciation increased while sites with land price appreciation of more than 6% q-o-q disappeared in the fourth quarter.