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Politics

Japan's opaque public land sales breeding ground for scandal

Exceptions to competitive auction principle are now the rule

TOKYO -- The absence of open bidding in over four-fifths of Japan's public land sales has come under fresh scrutiny amid a high-profile political scandal, highlighting the need for greater transparency to avoid the appearance of impropriety.

As a general rule, public lands for sale in Japan are competitively auctioned. The law allows for deals negotiated with a single buyer only in special circumstances. But projects in the public interest, such as schools, nursing homes and childcare facilities, are given priority access to land, and thus qualify for such treatment. Negotiated sales also come into play in 25 other situations, such as when the land being sold is worth only a small amount.

Entities such as municipalities and social welfare organizations pass purchase requests on to regional authorities, who screen them to decide whether or not to sell. If no such request has been made for a particular plot, it is put up for auction. But of the roughly 4,300 public land sales in Japan in fiscal 2015, 86% were negotiated, rather than completed through a competitive bidding process.

For example, the sale of public land to Moritomo Gakuen, an Osaka school operator espousing nationalist ideology, was negotiated directly between the company and the government because the property was for a school. The land was ultimately sold at far below market rate, generating controversy and raising suspicions of involvement by Prime Minister Shinzo Abe.

In the dark

Negotiated sales are simpler than their competitive counterparts, and thus allow low-value plots or disaster-afflicted land to be disposed of quickly and efficiently. But they also "permit a good deal of administrative discretion, and so tend to invite suspicion," according to Mitsuru Suzuki, a visiting professor at the Toin University of Yokohama who previously served as a top official at the Japan Fair Trade Commission.

"The principle of competitive bidding has lost all substance," said attorney Hideaki Numai. "The cases where deals can be negotiated are laid out by law, making it easy for the government to pursue that option."

The land sold to Moritomo Gakuen was "disposed of through proper means and at an appropriate price, in accordance with the law," according to Finance Minister Taro Aso. But the case remains a subject of debate in the Diet, with lawmakers criticizing the lack of transparency in how the sale was finalized.

"There is a responsibility to clearly explain why [a plot of land] is eligible for a negotiated sale" when that method is used, said Hiroshi Ohashi, an economics professor at the University of Tokyo. Including a third-party observer in the process could help shed greater light in such cases.

(Nikkei)

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