February 9, 2018 3:06 am JST

Japan's real estate lending slows amid housing glut

Less financing for rich people building apartments for tax purposes

Nikkei staff writers

Lending to individuals for constructing apartments fell sharply in 2017.

TOKYO -- Japanese real estate financing retreated 5.2% in 2017, the first drop in six years, with banks slowing lending for apartment construction amid higher vacancy rates.

Financial institutions lent 11.71 trillion yen ($107 billion), show Bank of Japan figures out Thursday. This also marked the first decline since the BOJ embarked on its large-scale monetary easing program in 2013.

Real estate financing topped 12 trillion yen in 2016 as the BOJ's negative interest rate policy, introduced that year, boosted lending by lowering long-term rates. That was the highest tally in data going back to 1977.

The main culprit for the drop was a significant decrease in retail lending for rental apartment construction. Such loans fell 14.2% to 3.32 trillion yen in 2017 after logging double-digit growth the previous two years.

The boom in construction financing had been driven by 2015 changes to Japan's inheritance tax law. New-apartment construction by the affluent, now faced with higher taxes, soared as a means of reducing their tax liabilities.

But "the spike in apartment construction for tax purposes isn't backed by demand," noted Yasunari Ueno of Mizuho Securities.

The Financial Services Agency and the BOJ have warned against rapidly increasing lending over concerns about bad debts and rising vacancy rates from surging supply.

"Banks have become cautious, given the current rental market and authorities' position," explained Takahiro Tsuchiya of the Daiwa Institute of Research.

Although new lending has declined, outstanding loans in the real estate sector totaled a record 74.79 trillion yen as of December's end. They accounted for about 15% of the 490 trillion yen in outstanding lending by Japanese banks.

Real estate financing has been a major source of lending growth for Japanese financial institutions over the last few years. The increase in overall lending might slow down should new financing for real estate continue to fall.

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