Tokyo Central Land Prices Rise as Much as 31%, Big Cities Gain
By Finbarr Flynn
Sept. 19 (Bloomberg) -- Land prices rose as much as 31 percent in one area of central Tokyo in the last year, leading prices higher in Japan's biggest cities as competition intensifies among real estate investment funds for acquisitions.
The biggest gain in Tokyo's three central wards was a commercial plot in Minami-Aoyama. The average price of residential land in the wards rose 18 percent, while commercial areas gained 14 percent, in the year ended July 1, a report by the Ministry of Land, Infrastructure and Transport showed today. Average land prices rose 0.9 percent in Japan's three biggest cities, Tokyo, Osaka and Nagoya, for the first gain in 16 years, the report said.
Investors are involved in ``fierce bidding competitions,'' said Japan Real Estate Investment Corporation, Japan's second- largest real estate, investment trust in a May report. Total assets held by REITs rose 65 percent to 4.8 trillion yen ($41 billion) in the year to August, STB Research Institute Co. statistics show.
``In Tokyo, big property companies are getting bullish, and higher rents will likely further rally land transaction prices,'' said Takehiro Sato, a Tokyo-based economist at Morgan Stanley, on Sep. 15, before the report was released.
A decline in nationwide commercial land prices slowed, recording the smallest drop since 1992, as growth in regional cities became evident. Nationwide, commercial land prices dropped 2.1 percent, with residential prices falling 2.3 percent, the ministry report showed, compared with 5 percent and 3.8 percent a year earlier.
Local Gains
``Some areas in local cities, too, are rising. This is not simply Tokyo versus countryside bifurcation,'' said Morgan Stanley's Sato. Areas with future potential profitability are rising, and not all locations, as was the case in the land bubble of the 1980s.
Land prices for central areas in the three biggest cities are still at a pre-1977 level for commercial land, and about the same as the 1981 level for residential land, the ministry's report said.
Today's land report is based on the assessment of 25,000 residential and commercial locations that are surveyed annually by prefectural governments nationwide. The report confirms the growth trend in land prices seen in earlier reports this year.
Commercial land prices in Japan's three biggest cities rose for the first time in 15 years last year, a land ministry survey released in March showed.
Nationwide land prices along major roads rose last year for the first time in 14 years, a National Tax Agency survey said last month.
Biggest Gainers
Some residential areas in Tokyo's Minato and Shibuya wards rose by more than 20 percent from a year earlier, as prices in prestige locations increased, ministry data said.
Prices around four railway stations along the Tsukuba express line, which started running between Tokyo and the outlying region of Ibaraki in August last year, were among the 10 biggest gainers in percentage terms for residential areas this year, with gains of at least 24 percent
Five of the 10 commercial sites that had the biggest percentage gains, one less than last year, were in Nagoya, in central Japan, with a plot near JR Nagoya Station recording a 35 percent rise. The same site rose 31 percent in value a year earlier. A real estate subsidiary of Toyota said in 2005 that it will co-develop a high-rise project, Midland Square Building, in front of Nagoya Station. The project is set to open in March 2007.
Regulatory Spur
To clean up bank bad loans, the Japanese government in September 1998 introduced real estate securitization, a financial tool that pools assets into tradable securities, making property investment easier and creating liquidity in the market.
In 2001, Japan's first two real estate investment trusts -- Nippon Building Fund Inc., and Japan Real Estate Investment Corp. -- were established.
The total number of real estate investment trusts rose from 22 to 38 in the 12 months to the end of August. The balance of securitized real estate assets in Japan is more 10 trillion yen, according to a September report by STB Research Institute.
``Securitization played a very important role in Japan's recovery,'' said Timothy Marrable, Director of Research at KBC Securities Japan.
``The freeing-up of capital and assets for more productive uses was essential for getting the economic engine jump- started.''
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