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04/02/2016

Japanese Property Market Quarterly Review, Fourth Quarter 2015-J-REITs Decline for First Time in Four Years, Foreign Visitor Arrivals Increase 47%-

Financial Research Department Economic Research Department Researcher Hiroto Iwasa 

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1.Economy and Housing Market

Japan’s GDP growth rate was revised up to 0.3% q-o-q in the third quarter from the negative number in the second quarter. However, the growth rate turned negative again to -0.4% in the fourth quarter due to weak private consumption. According to the Ministry of Internal Affairs and Communications, real consumption declined by 4.4% y-o-y in December mainly due to the slow sales of winter clothes.
NLI Research Institute modified its GDP growth rate forecasts in December to +1.1%, +1.6% and +0.0% y-o-y for 2015, 2016 and 2017 respectively (Chart-2). The number for 2016 will be high with active corporate facility investments and a rush demand before the consumption tax hike scheduled for April 2017, following which a decreased demand will cut the number considerably.
Chart-1 Labor Market/Chart-2 Japan GDP Growth Rates
While housing prices continued to rise, housing starts and new condominium sales declined in the fourth quarter.
Housing starts shrank by 1.3% y-o-y to 75.4k units in December, however, the number recovered by 1.9% to 909k units for the whole year in 2015 from the negative growth due to  the consumption tax hike in 2014 (Chart-3). Housing starts of apartments for lease increased by 4.6% y-o-y for the fourth consecutive year and those of condominiums increased by 4.7% after the negative growth in 2014.
New condominium units sold in the Tokyo metropolitan area decreased by 9.9% y-o-y to 40,449 units in 2015. The average unit price rose by 9.1% to 55.18 million JPY, the highest level since 1991. Real Estate Economic Institute forecasts a 6.3% y-o-y increase of sales to 43,000 units in 2016 (Chart-4).
According to Real Estate Information Network Systems, the transaction volume in the secondary condominium market in the Tokyo metropolitan area increased by 5.1% y-o-y to 8,391 units in the fourth quarter and by 2.9% to 34.8k units in 2015 (Chart-5). The average transaction price rose by 6.1% y-o-y to 28.92 million JPY for the third consecutive year.
The Home Price Indices in the Tokyo metropolitan area by Japan Real Estate Institute appreciated m-o-m for the seventh consecutive month and y-o-y for the sixth consecutive month in November (Chart-6).         
One of key factors for the housing market hereafter is how much mortgage rates will be affected by the negative interest rate policy introduced in February 2016. Furthermore, the government is preparing supporting measures for home buyers such as subsidy increases or enlarging inheritance tax exemptions before the consumption tax hike scheduled for April 2017. On the other hand, the tax authority is considering a review on inheritance tax conditions to prevent luxury condominiums from being abused for minimizing taxable bases.
Chart-3 Yearly Housing Starts/Chart-4 New Condominium Units Sold in the Tokyo Metropolitan Area
Chart-5 Transaction Volumes in Secondary Condominium Market/Chart-6 Home Price Indices

2.Land Prices

Land price appreciation has continued on the back of strong demand from retail stores and hotels benefiting from increasing foreign visitor arrivals. In “Chika Look Report 3Q 2015” by MLIT, no monitoring points recorded land price depreciation for the fifth consecutive quarter, with 95% of monitoring points in Tokyo, 88% in Osaka, 100% in Nagoya, 65% in rural cities and 87% nationwide posting price appreciations (Chart-7).  
According to Nomura Real Estate Urban Net, residential land prices in the Tokyo metropolitan area appreciated by 0.5% q-o-q for the tenth consecutive quarter and by 1.8% y-o-y (Chart-8).
 
Chart-7 Land Price Changes Nationwide/Chart-8 Tokyo Metropolitan Area Residential Land Prices

Financial Research Department   Economic Research Department Researcher

Hiroto Iwasa

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03-3512-1858

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