Market Trends

Residential Land Prices Up in Japan for the First Time in 27 Years: Concentrated in Major Metro Regions

Land prices are on the rise throughout Japan, according to the latest Official Land Price survey. Here are the key takeaways from the 2019 Official Land Price (koji chika) that was released this month.

  • Compared to 2018, there were 10% more areas that exhibited growth.
  • However, price growth is concentrated in redevelopment areas in the three main metropolitan areas and the other smaller metropolitan areas around the country, and any areas that are benefiting from the influx of new tourists.
  • Roughly 30% of the land prices around Japan are still stuck in a deflationary cycle, and the bifurcation of land prices only seems to grow year by year.
  • In 2019, residential areas around Japan were up in aggregate for the first time in 27 years.

Growth in property prices spreading to regional areas

Looking at national land prices in all zoning areas (residential, business, and industrial), 46% of the reporting areas in the big three metro areas were up this year, and 33% were up in regional areas. This is in contrast to when the current economic expansion started in 2013, when only 5% of the regional areas reported land price growth. This demonstrates how the growth in real estate prices in Japanese cities has spread to Japan’s regional areas.

Residential land prices up in the aggregate for the first time in 27 years

In 2019, residential areas around Japan were up in aggregate for the first time in 27 years. Areas that showed price growth were primarily in convenient locations, such as near big shopping centers, schools, and redeveloped commercial areas. By prefecture, there were 18 prefectures that had growth in land prices, up from 14 prefectures a year ago. For instance, Ishikawa prefecture switched to positive land price growth after the new Hokuriku shinkansen began operating. The number of prefectures with 1% or more price declines went down from 10 to 7 in 2019 as well.

In regional areas, the main places that exhibited land price growth were either areas fully committed to promoting commercial redevelopment, or areas that had good local policies for attracting families. For example, Higashine city in Yamagata-ken experienced population growth (and resultant land price growth) in its residential areas for the first time in 17 years, and this is thought to be largely due to new government policies focusing on creating a good environment for raising a family. In Naha in Okinawa prefecture, commercial redevelopments and extension of the monorail caused residential land prices to rise 10.6% in 2019 compared to the prior year.

Tourism a key driver of price growth

The importance of tourism to the economy continues unabated. For the first time ever, the number of foreign tourists eclipsed 30 million in 2018.

  • Hokkaido and Okinawa are especially favored by foreign and domestic tourists alike.
  • The number one area for commercial land price growth was in Kucchan-cho in the Niseko ski resort area. Niseko is popular with Australian ski tourists, and there are new condominium buildings and other new commercial developments nearby.
  • The number two area was in Osaka, by the Kuromon market area, which is particularly popular with foreign tourists.

Where land prices are falling

Regions in Japan with low birth rates, older populations, and net outbound migration continue to experience deflating land prices.

  • In regional areas, half of the land districts went down in price.
  • The biggest drops were in areas affected by the rain storms in western Japan.
  • However, the Yubari region in Hokkaido was number two nationwide, due to its net outbound migration to Japanese cities.
  • Even in Ishikawa prefecture, which enjoyed a rebound to positive growth in residential land prices overall, there were remote areas that suffered big drops (such as Suzu city with a 5.1% drop). The ever-shrinking population and growing number of abandoned houses is having a negative effect in many residential markets around Japan.
  • The bifurcation of Japanese land into convenient/investable land versus remote/depreciating land continues.

Convenience as a driver of price growth

The importance of convenience is defining land prices around Japan, but especially in the three megalopolises. In Noda city in Chiba, residential land prices were down 7.8% compared to a year ago, which gave Noda the eighth biggest drop nationwide. The problem there is a glut of housing combined with more people wanting to avoid living in Noda due to the long distance to its nearest train station. Miura city in Kanagawa prefecture suffered a similar fate with its 8.4% price drop.

In commercial land areas, the story is pretty much the same. In Nara prefecture, prices in the city of Nara grew 5.1% thanks to the tourist boom, but in the neighboring cities of Tenri and Uda, deflation in land prices continued. In the greater Tokyo area, neighborhoods far from the city center were the ones most likely to be down, with locations in south Ibaraki prefecture and north Saitama prefecture experiencing the most conspicuous price declines.

Lead photo: Mt. Yotei, Niseko via Pixabay