TOKYO -- Land prices in Japan rose for the third straight year in 2017, with areas outside major cities registering their first increase in 26 years, as some see asset deflation finally reversing, helped by negative interest rates and a surge in foreign visitors pushing up demand.
The average price of land for commercial, industrial and residential use across the country rose in 2017, according to a land price survey released Tuesday by the Land, Infrastructure, Transport and Tourism Ministry. The average price outside the three biggest metropolitan areas rose for the first time in 26 years by 0.041%, indicating that the upward trend is spreading from larger cities to wider regions.
The land ministry said these rises were supported by actual demand, rather than driven by speculation as was the case in the late 1980s. Real estate and labor markets have taken a long time to adjust after the collapse of the bubble that plunged Japan into a decades-long deflationary cycle.
According to the Cabinet Office's National Accounts Statistics, the value of land assets in Japan totaled 1.1 quadrillion yen ($11.1 trillion), just 60% of the level during the bubble but improving for the third consecutive year, reflecting a recent gradual recovery in economic growth and land prices.
Overall residential land prices rose 0.3%, in the second consecutive year of increase. Commercial land prices increased by 1.9%, marking a rise for the third consecutive year.
The rising prices were driven in large part by the annual 20% growth in the number of foreign visitors to Japan. Visitors totaled 28.69 million, the highest-ever figure, in 2017. The top three places that marked the highest rise in residential land prices were in the town of Kutchan, Hokkaido.
Prices also rose at the foot of Mount Niseko Annupuri, home to a number of ski resorts, as well as downtown areas near JR Kutchan Station. Demand increased also from resort workers who sought homes in the area.
Negative interest rates have also led investors to channel funds to land investment. In particular, prices are recovering in locations where redevelopment projects are being carried out and in the downtown areas of major cities.
"In central city areas, condominiums worth over a hundred million yen are the segment that has the highest sold unit ratio," said Kunio Kitamura, analyst at Sumitomo Mitsui Trust Research Institute, referring to the ratio of units sold relative to those on sale in a given period.
"The wealth effect from the rising stock market has also driven purchases," he added, citing the effect of the stock market rally to boost household wealth.
On the other hand, the central downtown area of Yonago, Tottori Prefecture on the Sea of Japan coast, suffered the biggest fall of 10.9% in the prices of commercial land, affected by the withdrawal of a department store.