TOKYO -- Urban commercial land values are making a comeback in Japan as cheap credit and a weak yen embolden foreign and domestic players alike to buy in.
Meguro Gajoen, a multiuse complex featuring wedding and office space here in the capital, recently sold for an eyebrow-raising markup of more than 10 billion yen ($84.7 million). Real estate developer Mori Trust flipped the property to U.S.-based LaSalle Investment Management for more than 140 billion yen in January after buying it for about 130 billion yen last August.
A person familiar with LaSalle described the purchase as a good bet, given the ample potential for rent appreciation.
Commercial land values in Japan have stopped falling for the first time in seven years. Property bulls are wagering that a resurgent Japanese economy will drive up office rents. The office vacancy rate in central Tokyo has retreated to a roughly six-year low of 5.31%, according to real estate broker Miki Shoji, which expects a landlord's market to continue.
The Bank of Japan's ultraloose monetary policy has depressed long-term interest rates, lowering the financing hurdle for property buyers. New domestic bank lending to the real estate industry grew by a fifth on the year in the October-December quarter, reaching 2.5 trillion yen, BOJ figures show.
Kanazawa, a midsize city west of Tokyo, boasted the biggest jump in commercial land value nationwide in the land ministry's latest official survey. Its appeal has grown thanks to a new bullet train connection to Tokyo. The third-largest gain was seen in Nagoya, which sits at the other end of a magnetic-levitation train line to Tokyo slated for completion in 2027.
"Investors looking for resale profits are buying small and midsize buildings and empty lots," a local real estate appraiser says.
Meanwhile, foreign property hunters are taking advantage of the increased buying power that comes with a weak yen. GreenOak Real Estate, a U.S. investment firm, shelled out around 50 billion yen for the Aoyama Building, a vintage property occupying a prime piece of the Tokyo neighborhood of the same name. That was more than a fifth more than what a domestic real estate investment trust considered paying, an official at the REIT says.
Japanese real estate purchases by foreign companies and foreign investment funds surged 170% to 981.7 billion yen last year, according to the Urban Research Institute, an affiliate of Mizuho Trust & Banking. Property investment by foreign individuals is also on the rise. Real estate broker Tokyu Livable reports a notable turnout of mainland Chinese and Taiwanese for its property tours. Some recent deals have been worth around 3 billion yen, according to the company.