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Fate of Japan's land price gains hinges on real demand

Land prices are climbing in downtown Hiroshima as more big stores crop up.

TOKYO -- Much of this year's rise in land values in cities outside the main urban centers of Tokyo, Osaka and Nagoya has been driven by yield-starved investors, raising the risk that the trend will not be sustainable unless real demand keeps pace.

Commercial land prices in Fukuoka Prefecture climbed 1.1% on the year as of July 1, a turnaround from the year-earlier 0.2% decline, government data released Tuesday show. These gains were driven by a hotel construction boom around Hakata Station that will add more than 1,000 rooms by fiscal 2018.

Bidding for the land is turning somewhat frothy. "An Osaka developer won an auction in February with a bid of nearly five times the roadside land price," a source at a financial institution said, referring to government-set land reference prices used to calculate taxes.

Just two of the 11 commercial lots logging the largest gains over the past year are in Tokyo. The list includes not only the other top-tier cities of Osaka and Nagoya, but Kyoto and Kanazawa as well. "It's the same trend as in the mini-bubble from 2006 and 2007," said Shigeo Hirayama of the Urban Research Institute. "It's gotten harder to acquire properties in Tokyo, so investor money is flowing into regional areas."

Prices for some lots have jumped more than 15% in downtown Hiroshima. Retailers such as Parco and Sweden's H&M Hennes & Mauritz have opened or remodeled big stores in the area in recent years.

Some figures seem to have come out of left field. Topping the list of residential land gains at 27.3% is a lot in the town of Kutchan in Hokkaido, which has seen a flood of inquiries from foreigners wanting to build vacation homes with access to the nearby Niseko ski resort. Developers eyeing future hotel construction pushed up the value of a forested lot in the area by 23.8%, the fastest such rise in the country.

Though foreigners visiting Japan have been growing, spending per tourist sank nearly 10% on the year in the April-June quarter. The scramble to buy real estate to capitalize on spending by tourists may not go on forever.

The residential land market is showing signs of a shift. In the Tokyo area, prices entered a downturn in Tama and in Kamakura, Kanazawa Prefecture, while growth slowed in Yokohama and in Funabashi, Chiba Prefecture. Residential land values increased just 1.8% in Nagoya's Chikusa Ward, decelerating sharply from a 4.1% jump a year earlier. Real estate information provider Tokyo Kantei chalked this up to condominium prices outpacing those for detached homes.

The Government Pension Investment Fund and Japan Post Bank plan to diversify into real estate to improve returns eroded by negative interest rates. But their investment may not necessarily correspond to actual demand.

Investors will likely get pickier about location. Prices climbed more than 10% for lots near a new station on a subway line in Sendai that opened last December. Meanwhile, a lot in Miura, Kanagawa Prefecture, ranked fourth on the list of the sharpest drops despite its proximity to Tokyo, due to a lack of easy access by public transit.

"With more women and seniors working, people and businesses tend to cluster near train stations," said Kunio Kitamura of the Sumitomo Mitsui Trust Research Institute.

(Nikkei)

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