Official Land Prices in Japan Rise for the First Time in Two Years

March 28, 2022

Official land prices in Japan increased 0.6% in 2021, rising for the first in two years, reflecting the gradual recovery of the economy from the pandemic and related border closure. This was as announced by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) based on its January 1, 2022 survey of 26,000 plots of land nationwide.

The MLIT’s official land price survey (koji chika, 公示地価) is a price index based on land transactions. In the 2022 survey 44% of the plots surveyed rose in value, more than double the percentage (19%) that rose in 2021.

Strong housing demand due to the increasing acceptance of telecommuting has provided a tailwind to this year’s results. However, declining values in major city centers and regional tourist areas are preventing overall land prices from making a full-scale recovery from the pandemic.

Residential

Nationwide residential land prices rose 0.5% year-on-year, reversing the 0.4% drop in 2021. The growing acceptance of telecommuting has enabled workers to consider moving into bigger apartments and single-family homes. This has juiced the new and re-sale condominium markets and allowed people to move into the suburbs, while keeping their city-center jobs.

The Tokyo metropolitan area saw residential land prices increase of 0.6% year-on-year, for example, with the residential land in the city of Kashiwa, Chiba growing 0.4%, the first time in fourteen years that the city has experienced positive price growth. Kashiwa is a popular bedroom community for people working in Tokyo. Saitama (City) and Yokohama also saw higher than average increases in residential land prices, 1.5% and 0.8%, respectively.

Commercial

Nationwide commercial land values were up 0.4% compared to 2021. This compares to a drop of 0.8% in 2021. Regional differences were conspicuous in the survey, with Osaka prefecture falling 0.2%, for the second consecutive year of decreases.

The Osaka region is especially dependent on inbound tourism, which was almost completely shuttered when Japan closed its borders in an effort to control the spread of the virus. In 2021, the number of visitors to Japan fell to a record low of 245,900. This was a drop of 94.0% compared to 2020 and 99.2% compared to the pre-pandemic level in 2019 (Source: Kyodo).

The government has maintained its target of attracting 60 million visitors from abroad in 2030 but in the near future, commercial land prices will likely continue to face headwinds in regions that are highly dependent on demand from foreign tourists.

Central business districts have also been affected by the declining number of commuters due to the pandemic. In Tokyo’s 23 Wards, the three central wards of Chiyoda, Chuo, and Minato fell into negative territory for the second consecutive year. However, in the other 20 wards commercial land prices were positive, led by re-development projects around major train stations. Commercial land values in Nakano Ward, for example, rose 2.3% compared to 2021.

Other key highlights

Of the three main segments (residential, commercial, and industrial), industrial land prices had the strongest showing, up 2.0% compared to 2021. This was primarily due to the expansion of online shopping, caused by the government’s stay-at-home and social distancing recommendations. Ichikawa and Funabashi, located in the greater Tokyo metropolitan area and well-suited to logistics facilities, for example, both had year-on-year- growth rates of about 20.0%.

The strongest growth rates, however, were seen in Japan’s regional cities. Land prices in the four cities of Sapporo, Sendai, Hiroshima, and Fukuoka, which are centers of their regional economies, increased by 5.8% on average, taking in account all land types (residential, commercial, and industrial). This compares with a growth rate 2.9% in 2021. Population inflow from the surrounding area has continued due to re-development projects around major stations. This has created a virtuous cycle in which increasing demand attracts more investment.

The inflow of inbound investment money also supported land prices. As interest rates are rising in the United States, while the Bank of Japan has pledged to continue an easy money policy, Japan will likely continue to grow as an investment destination because of the relatively lower cost of borrowing funds.

Source: Ministry of Land, 2022 Official Land Survey (in Japanese)

Lead image: Rice fields in Ohara, Kyoto via iStock 204908127

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