Skyrocketing Japanese Land Prices Rule Out Owning a Home for Most : Real estate: A hard-to-understand combination of bureaucracy, tax shelters, lobby interests and unbridled speculation has made the nation the world’s priciest.
Many Japanese have luxury cars, diamonds and a penchant for some of the most expensive delicacies, but they find one coveted item out of reach--land.
Property prices have driven up business costs, widened the wealth gap between landowners and landless, and made home ownership near to impossible for the average Japanese. Some banks offer 100-year loans that can be passed down through generations, a mortgage unheard of elsewhere.
Land inflation has given Japan 60% of the value of all real estate worldwide, though it comprises 0.3% of the world’s land mass.
It’s not that there’s an acute shortage of land in the island nation that became the economic miracle of the 20th Century. Rather, it’s a murky combination of bureaucracy, tax shelters, lobby interests and unbridled speculation that has made Japan the planet’s priciest piece of real estate.
Moreover, the enormous value attached to Japanese land has potential economic consequences that go far beyond its borders.
For example, property prices affect the financial strength of speculators and other large investors, who have used their land as collateral to buy stocks. Up to half of Japan’s phenomenal stock market growth of recent years is rooted in the value of Japanese real estate.
Some economists fear that a fall in real estate values could devastate the stock market, which already has dropped dramatically this year for other reasons, and send financial shock waves around the world. But others contend that property prices must fall as part of a broader reform of Japan’s economy.
In talks on changing business practices that have contributed to the longstanding U.S. trade deficit with Japan, the government promised earlier this month to curb land inflation.
Besides U.S. pressure, there also was recognition that drastic measures are needed to control real estate speculation and prevent the gulf between property owners and non-owners from upsetting Japan’s social stability, according to Kisaburo Ishii, a Construction Ministry official involved in the talks.
Land prices in Tokyo soared 23.8% in 1987 and 65.3% in 1988 before the increase slowed to less than 2% last year, the National Land Agency reported.
Nationwide, however, they jumped 17% after climbing 21.7% in 1988 as speculative inflation spread to other major Japanese cities. Last year in Osaka, Japan’s second-biggest city, commercial land prices surged 43.9% and residential prices 58.6%.
The world’s most expensive commercial property, in central Tokyo’s Marunouchi and Ginza business districts, is valued at about $23,700 a square foot.
Office space in Tokyo rents for an average $191 a square foot vs. $156 in London and $64 in New York. With vacancy rates hovering around 0.2%, it’s a landlord’s market.
After touting the “my home” dream for years, newspapers now feature tales of families who scrimped for decades only to find even a modest home 90 minutes outside Tokyo well out of reach.
An average-size house of about 960 square feet about an hour’s commute from central Tokyo costs $316,000. Inside Tokyo, prices shoot above $632,000 for houses and about $378,000 for smaller condominium apartments.
Although mainstream wage-earners now earn an average of $50,000 annually, many are doomed to a renter’s life, since banks generally will lend only four times an annual income for a conventional home mortgage.
Competition for new homes in Tokyo’s vast suburbs is so intense that hundreds apply for each opening. Many homes are sold by lottery before the foundations are laid.
Some families, giving up on ever owning a home, instead are spending on cars, travel and other luxuries.
Nationwide, an average of about 60% of all households own their homes. In greater Tokyo--home to around 30 million of Japan’s 122 million people--only 40% do.
“The government must deal with this problem,” said Susumu Ichihata, senior managing director of the Urban Research Institute in Tokyo. “Now that most Japanese live in cities, these problems could cause political unrest.”
While rents on older apartments have been controlled for decades, newcomers to the housing market face rents prohibitively high.
Spacious Western-style apartment rentals fetch $3,140 to $9,500 a month. A 650-square-foot, Japanese-style unit rents for about $820.
Landlords customarily demand at least four months’ rent up front--part refundable deposit, but about two months’ rent in nonrefundable “key money,” paid for the privilege of becoming a tenant.
Renters find the home scramble a nightmare.
“I’ve just returned to Tokyo, and we need to move to a bigger flat. I’m really in a bind because there’s no way we can afford to buy a home,” said Tadao Aoki, a government aide who recently returned from a posting abroad.
Most real estate purchases in Tokyo today are by people with property to sell or to borrow against and by speculative brokers.
Real estate investment, with its various writeoffs, is seen as the easiest way for many high-income earners and landowners to avoid high income and inheritance taxes.
