Slowdown in Japanese land prices expected

By Kathleen Chu  |   2008-7-3  |     NEWSPAPER EDITION

GAINS in Japan's land prices will probably slow in the next few years as investors become more wary after the subprime-mortgage market collapse, according to CB Richard Ellis, the world's biggest commercial property brokerage.

"We are expecting to see a more modest increase over the next few years," Andy Hurfurt, a director at CBRE's Tokyo office told Bloomberg News.

High-quality office buildings in central Tokyo offered a yield of about 3 percent, while office buildings located in non-prime areas in major cities, and homes and suburban retail properties - for which prices had fallen by as much as 20 percent - returned as much as 5.5 percent, he said.

Japan's land prices rose for a third year after more than a decade-long slump. The price recovery may lose momentum as borrowing costs have risen since the collapse of the subprime-mortgage market in the United States saddled banks with US$402.6 billion worth of credit losses and writedowns.

Borrowing costs have risen as much as 300 basis points in Japan from a year earlier, according to Credit Suisse Group of Switzerland.

Nationwide average land prices increased 10 percent to 143,000 yen (US$1,341) a square meter in 2007, compared with an 8.6-percent gain in the previous year, the National Tax Agency said in a report on Tuesday in Tokyo.

Long-term investors were replacing opportunistic buyers who relied heavily on debt, Hurfurt said. The growth of Japan's real estate market would depend on renewed availability of credit.