Japan average land price falls for first time in three years on coronavirus shutdowns

The average price of a parcel of land in Japan fell 0.6% year-on-year, for the first time in three years. As foreign tourists have been shut out of the country to slow the spread of the coronavirus demand for tourism-related real estate has fallen sharply.

Until the pandemic, land prices in Japan had been on a slow uptrend that started in 2018, when for the first time in 27 years, the national average land price rose for the first time since the bursting of the asset bubble in the early 1990s.

The sudden stop in land value appreciation is one of the main takeaways from the Ministry of Land’s latest Standard Land Price (基準地価, kijun chika) survey as of July 1st, with survey results released on September 29th. Of 21,519 sites surveyed across the country, 60.1% saw lower prices.

This (the July 1st kijun chika) survey is the first nationwide survey that captures the effect of the coronavirus on real estate prices in Japan.

Commercial Land

The effect of the coronavirus was especially pronounced in urban commercial land prices in the three major metro regions (Tokyo, Osaka, and Nagoya), where land values increased 0.7% this year, compared to an increase of 5.2% in 2019.

Land prices in central commercial districts and tourist destinations have slowed in growth because expectations for tourist demand have softened, meaning that rents will likely be on a downward trend.

For example, the sharpest fall in commercial land prices was seen in the city of Takayama, in Gifu prefecture, which is known for its hot spring resorts. Prices there dropped 9.3% due to a plunge tourist traffic.

Tokyo’s Meijiya Ginza Building in Ginza 2-chome, which for 15 consecutive years has held the title of “most expensive parcel of land in Japan,” dropped in value by 5.1% (to 41 million yen per square meter). This is still Japan’s priciest land but is the first year-on-year decline in nine years.

In some positive news, among the surveyed sites, the city of Miyakojima, in Okinawa prefecture, had the highest land price rise for both commercial (+38.9%) and residential (37.3%) land. Here, prices were buoyed by resort hotel development.

Residential Land

In Japan’s three largest metropolitan areas (Tokyo, Osaka and Nagoya) the average price of residential land fell 0.3%, declining for the first time in seven years.

Outside the three main metro areas, the decline in residential land prices was steeper, at 0.9%.

Abrupt reversal

The effect of the coronavirus on land prices is apparently when comparing land values as measured at the beginning of the year compared to those recorded on July 1st.

In the survey that recorded national land values as of January 1st (for land surveyed between July 2019 and January 1, 2020), 1,605 parcels of land overlapped with those surveyed on July 1st, 2020. Of these sites, commercial land grew 2.5% in the January 1 survey, but fell 1.4% in the July 1 survey. Residential land rose 0.8% in the January 1 survey but fell 0.4% in the July survey.

Effect of telecommuting on land prices

As many companies have switched to telecommuting, the number of people working in suburban and rural areas has increased, but the Ministry of Land says that there is not yet traction in non-urban land price growth. Instead, as the demand for city-center office space has decreased, office rents are being pushed downward, with a concurrent effect on commercial land prices.

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Source: Japan Ministry of Land, press release on Q2 kijun chika (PDF in Japanese), September 29, 2020

Lead photo: Street in Shinjuku, Tokyo via iStock