Japanese Property Market Quarterly Review, Third Quarter 2016-Inbound Demand Peaks Out Affecting Retail Stores and Hotels-

mamoru masumiya

1.Economy and Housing Market

Japanese real GDP maintained a positive q-o-q growth for the third consecutive quarter. However, domestic demand has been weak on the whole and GDP growth in the third quarter was mostly attributed to the increase of net exports driven by IC exports to Asia for new smartphone models and resilient automobile exports to the U.S.

Positive GDP growth is expected to continue for the moment backed by the recovery in private consumption given the good employment environment (Chart-1), though net exports will not be reliable affected by uncertain global economic conditions. In the BOJ Tankan Survey in the third quarter of 2016, the D.I. of all three categories, large manufacturers, large non-manufactures and large property industry companies, are forecasted to maintain certain positive degrees in the fourth quarter (Chart-2).

NLI Research Institute revised its Japanese GDP growth forecast up by 0.2% to +0.9% for the fiscal year 2016 and forecasts +0.7% for 2017, reflecting the latest numbers from the Cabinet Office.

Chart-1 Unemployment rate and Jobs-to-Applications Ratio/Chart-2 BOJ Tankan Short-term Economic Survey

Housing starts posted a positive y-o-y growth for the third consecutive month to 85,622 units in September (Chart-3). Housing starts of apartments for lease have grown strongly (Chart-4) backed by insistent demand from individual land owners to save on inheritance tax, and additionally pushed by aggressive banking loan activities and stabilizing construction costs (Chart-5). However, housing starts of condominiums remain under the 10-year average and those of houses have peaked out with the anticipated rush demand disappearing following the postponement of the consumption tax hike originally scheduled for April 2017.

Chart-3 Monthly Housing Starts/Chart-4 Japan Monthly Housing Starts by Type/Chart-5 Construction Costs Indices

New condominium units sold in the Tokyo metropolitan area posted a positive y-o-y growth for the first time in ten months to 3,424 units in September (Chart-6). It looks like sizable projects originally targeting the rush demand before the consumption tax hike sold well. However, most of the sold projects are located outside of Tokyo, as units sold in Kanagawa prefecture increased by 50.9% y-o-y.

Condominium prices in the secondary market continued to rise as the average unit price in the Tokyo metropolitan area rose by 5.7% y-o-y to 31.3 million JPY in September, according to Real Estate Information Network Systems. Furthermore, Japan Real Estate Institute Home Price Indices, the repeat sales method index, also continued to rise (Chart-7).

Chart-6 Monthly New Condominium Units Sold (Tokyo Metropolitan Area)/Chart-7 JREI Home Price Indices