Otimer: The revaluation of land held by the banks in Japan is an interesting proposition, particularly in view of the fact that they plan to do it as a tax free transaction. I think, they will be opening a can of worms, however, since other parties owning land at a very low cost base will now clamor for the tax free revaluation of these assets and thus the tax free selling of these assets at the new valuation. If they do that, it will in essence be a major tax cut in Japan over the time such transaction might take place of much more than the 4 to 6 trillion they estimate the increase in bank assets.
The main problem will be if they limit this tax free revaluation to banks, this will once again create distortion and obfuscate accounting transparency. The truth is that such tax free revalaution should be applied to actual transaction than just book upgrading. Without an actual transaction, the real value of real estate is not known and it leaves a lot of room, once more for an artificial redeployment of assets not within the free market environment, this always create situations where capital deployment is carried out not for its most efficient use but for a specific "government edicted" higher good. Dangerous.
Short term, that may remove the cloud of instability in the Japanese banking system, but unless these lands values are liquified (meaning actual transaction at these new values) cause money to flow into the economy, the final effect will not wake up the Japanese consumer.
The LDP is trying to find ways around the need to put money in the hand of the consumer. That is not going to solve the need to increase demand from Japan to absorb part of the productive glut in the rim.
The LDP is also trying to find a way to provide more assets on the banks' balance sheet. That is good if these are real assets and if the process is not selective just to banks but to every owner of land in Japan, and of course if they find a mechanism to give this land true valuation. Last, if they decide on such a step, will they be in danger of accelerating a future defaltion if the value of real estate for one reason or another will decline (and I presume tha banks will then be required to mark down the vlaue of their real estate. This last items has in it the seeds of a major future problem.
Zeev |
