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Property
Published August 2, 2007

Japan land prices soar on property boom
But unlike during 1980s boom, 2006 hikes are confined to urban areas

(TOKYO) Japanese land prices jumped 8.6 per cent last year, an official survey showed yesterday, as an economic recovery and continued low interest rates fuel a boom in real estate and construction.

Land prices registered a second straight annual gain, rising at a much faster pace than in 2005 when they had increased for the first time in 14 years as the economy snapped back from its long deflationary slump.

The average price of land alongside major roads in Japan rose to 126,000 yen (S$1,616) per square metre as of Jan1, the National Tax Agency reported, after a 0.9 per cent rise in 2005.

Land prices in Tokyo shot up 13.1 per cent, after a gain of 3.5 per cent the previous year, reflecting a scramble to build new condominiums and shopping centres as the economy enjoys its longest recovery in post-war times.

'Developers are very aggressive about new buildings,' said Mamoru Yamazaki, chief economist for RBS Securities in Tokyo.

'The recovery in the overall economy, very low interest rates and foreign interest in Japanese assets are pushing land prices up,' he said.

Japan's interest rates remain the lowest among major economies at just 0.5per cent, a legacy of the bursting of the asset bubble of the early 1990s.

A property market collapse then contributed to pushing Asia's largest economy and its stock market into a long deflationary spiral, encouraging consumers to put off spending and leaving banks saddled with bad loans.

New buildings are now springing up around the capital although the market is still far from the dizzying heights of the late 1980s, when the grounds of the Imperial Palace were famously valued at more than the state of California.

The recent sharp rises in land prices are also mainly confined to urban areas, unlike during the previous boom, suggesting investors are being more cautious about putting money into property, analysts noted.

'The Bank of Japan is already watching the real estate market closely because they remember well the bubble times,' said Mr Yamazaki.

'If land prices continue to rise so sharply in the coming years the Bank of Japan may think that a bubble is spreading (again),' he added.

While Japan's economy is growing steadily, recent sharp falls in global share prices and political uncertainty after an election defeat for the government here have clouded prospects for further interest rate rises.

While asset price deflation appears to have ended in Japan, consumer prices have resumed their decline, falling for five straight months up to June.

The most expensive piece of land in the country remains a patch alongside the main street in Ginza, one of Tokyo's most exclusive shopping areas and home to some of the most expensive real estate on earth.

It was valued 24.96 million yen per square metre, recovering to levels seen in 1989 before the bursting of the asset bubble, the survey showed.

Prices rose 8.1 per cent in the western city of Osaka and by 9.1 per cent in Nagoya in central Japan.

Average land prices in rural areas held steady, finally stabilising after a decline of 5.7 per cent in 2005.

But prices kept falling in 31 regional provinces, adding to disparities between land values in urban and rural areas.

The tax agency assesses land values at about 410,000 locations across Japan. -- AFP