Japanese Property Market Quarterly Review,Second Quarter 2016-While Housing Starts Robust, Office and Retail Rents Peak Out-

Kazumasa Takeuchi

1.Economic Conditions

Diffusion Indexes of the Economy Watchers Survey by the cabinet office declined to the worst level in the second quarter since the inception of Abe Cabinet (Chart-1), affected by several negatives such as the earthquake in Kumamoto, Brexit, the appreciation of the yen and the equity market decline based on global economic uncertainty. Private consumption has not strongly recovered since the consumption tax rate hike in April 2014.

On June 1, the government decided to reschedule the next consumption tax rate hike from 8% to 10% again from April 2017 to October 2019. Considering the disappearance of the anticipated tax hike related rush demand in 2016 and the counteractive slowdown in 2017, NLI Research Institute revised its real GDP growth forecast from +0.9% to +0.6% for 2016 and from 0.0% to +1.1% for 2017 (Chart-2)

Chart-1 Economy Watchers Survey/Chart-2 Japan GDP Growth Rates

2.Eased Labor Shortage and High Construction Costs

The unemployment rate and the jobs-to-applications ratio have been improving (Chart-3). However, labor shortages have somewhat eased based on higher wages, and construction costs have apparently peaked out (Chart-4). According to Keidanren, wages for construction workers rose noticeably by 3.2% y-o-y this spring compared with those in other industries rising by around 2%.

Chart-3 Unemployment rate and Jobs-to-Applications Ratio/Chart-4 Construction Cost Index