Alarm raised over Japan real estate
By Michiyo Nakamoto in Tokyo
Published: September 5 2007 23:09 | Last updated: September 5 2007 23:09
The head of Japan’s second biggest housebuilder on Wednesday warned Japanese property prices were a bubble set to burst, fuelling concerns that real estate prices have reached unsustainable levels just a few years into a recovery from a prolonged slump.
“The property market has become dangerous and I wouldn’t be surprised if the real estate bubble goes bust,” Takeo Higuchi, chairman of Daiwa House, told Bloomberg.
Mr Higuchi’s remarks come as two of the world’s hitherto most buoyant property markets – the US and the UK – face widening problems, raising fears of a global property slump.
The US market has been hit by fears about problems in the subprime mortgage sector, which has aggravated a downturn in the broader real estate market while the UK has seen a sharp decline in the value of real estate investment trusts.
Mr Higuchi’s comments highlight growing concern that Japan’s property sector, which has risen strongly on a wave of investment, particularly by foreign funds, has peaked.
They sent property stocks down 4 per cent yesterday, which contributed to a 1.5 per cent fall in the benchmark Nikkei average.
“Given Japan’s recent experience of 15 years of painfully dropping housing and land prices, it’s no wonder these remarks sent shivers through the investor community,” said Royal Bank of Scotland in a note.
Investors such as Australian pension funds and Singaporean funds have helped boost prices in some prime areas of Tokyo by 30-40 per cent last year. Japanese real estate investment trusts have also, until recently, performed strongly on the back of the boom.
However, a recent clampdown by regulators on lending for property investment, the already strong rise in rent and real estate prices and pressure on foreign investors from the downturn in other markets have conspired to spur the selling of Japanese real estate issues and J-Reits.
“I don’t expect a crash yet, but if [Europe and the US] crash, the Japanese market could crash too,” said Yoji Otani, real estate analyst at Credit Suisse Securities in Tokyo. Since early last month Japanese real estate investment trusts have fallen more than 20 per cent, while the property sub-index of the Tokyo Stock Exchange has fallen 26 per cent. Nevertheless, Japan still offered a 1 per cent to 2 per cent spread over 10-year Japanese government bonds while spreads in western markets are negative, said Machio Honda, J-Reit analyst at Deutsche Securities in Tokyo. |
