The slowdown of housing starts in Japan’s real estate market is bankrupting the construction industry, and could soon force the nation to cede its position as the second biggest global economy. Japan’s housing sector faces a steep uphill climb to recoup prices that have fallen 40% from their peak. Job troubles are delaying real recovery in Japan, despite government real estate stimulus programs. See the following article from Property Wire for more on this.
New property construction in Japan fell to the lowest level in 2009 since the nation celebrated its postwar recovery by hosting the Olympics in 1964, as builders were hit by dwindling household incomes and sustained deflation.
The latest figures from the Land Ministry show that construction companies broke ground on 788,410 homes last year, 27.9% fewer than in 2008, although the pace of decrease eased in the past four months of 2009 with housing starts falling just 15.7% in December from a year earlier.
The report highlights a decline that’s likely to see Japan lose its place as the world’s second-largest economy to China this year. It also indicates that government programs to stimulate the real estate market have been unable to reverse expectations that property prices will fall, keeping households away from investing in real estate.
‘It’s been a very miserable year. There certainly is an improvement underway, but it’s been slow to materialize, and it’s starting from very low levels,’ said Richard Jerram, chief economist at Macquarie Securities.
Japan has been blighted by price declines and sluggish economic growth since an asset bubble burst two decades ago. An index of residential land prices has slid more than 40% from its 1991 peak, according to figures from the Japan Real Estate Institute.
Respondents in a Bank of Japan survey released this month said they expect property values to slump for a seventh quarter. The central bank’s index of household expectations for future land prices dropped, reversing two quarters of improvements.
And according to the Real Estate Economic Institute the average price of condominiums fell 5% last year in the metropolitan areas of Tokyo, Kanagawa, Saitama and Chiba.
‘More people are asking for discounts or are looking to share rooms with others. We’re not going to see a full-fledged recovery in the housing market for at least a couple of years,’ said Wataru Ichinari, president of Tokyo-based Ichinari Real Estate.
Policy makers are trying to revive the market. Former Prime Minister Taro Aso’s administration expanded and extended tax deductions on housing loans. The current government under Yukio Hatoyama included incentives to build and renovate energy efficient homes in an $80 billion stimulus package passed by parliament last week.
More real estate industry business is going bust. Six large construction companies failed last year and bankruptcies in the construction industry accounted for more than a quarter of 15,480 failures, the highest among all industries, according to Tokyo Shoko.
Unemployment has been above 5% since last April and wages have slumped for 16 straight months. The job environment will further dissuade potential home buyers, according to Hiroshi Miyazaki, chief economist at Shinkin Asset Management in Tokyo. ‘With unemployment so high and wages dwindling, households just aren’t going to be in the mood to buy a new home,’ he said.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.