Japan is suffering from the global recession more than most countries. The economic meltdown has been painful for the export-dependent country. Its economy is contracting at a speed that has not been seen during the past three decades. The country is desperately trying to limit the fallout and to resuscitate its weak economy, which is the second biggest in the world after the United States.
In a bid to push back against the recession and to create jobs, Japan’s capital city, Tokyo, is tripling the number of public works projects, according to the Washington Post. The city has taken the opportunity to give itself a face lift, one the well-maintained city really doesn’t need. It has employed jobless men and women to work on roads and parks to stave of the scourge of unemployment. The rest of the country is trying to decide whether to follow suit.
Japanese real estate
In the 1990’s, when the Japanese economic bubble popped, property prices plummeted and reached rock-bottom fast. The country’s real estate market has yet to see the incredibly high 1980’s prices, and probably never will in the near future. Now that the credit crisis and the global economic recession have reached Japanese shores, the real estate sector is in for another rough ride.
It is too bad too because the property market had started showing signs of health over the past few years. Tokyo, Japan’s largest city, even made it on Forbes’ 2008 top ten places to invest in real estate — along with some of the world’s other high profile cities such as New York and London. When the current global recession hit, it was just as the average Japanese became more comfortable with the idea of investing in real estate again. As the crisis took over and credit dried up, Real Estate Investment Trusts (REIT’s) stopped purchasing, according to Shareswatch, an Australian finance news blog. Some even went bankrupt while others tried to get rid of part of their real estate portfolio.
Since then, growth in the property market has ground to a near halt. Vacancy rates for the office sector in Tokyo, Osaka, and Nagoya, Japan’s three largest real estate markets, have began creeping up, according to CB Richard Ellis (CBRE), an international real estate service company. While the vacancy increases in Tokyo were on the low side and in Osaka insignificant, Nagoya saw its rate rise to 9.2 percent, the highest since 1992.
As for the residential sector, recent data released by the country’s Real Estate Economic Institute showed that new condo offerings in February dropped by 27.5 percent in Tokyo. The new figures maintained a downward trend that has thus far lasted for a year and half, according to Japan Economy and News Blog. However, the average new condo price rose by 1.2 percent and out of the 2,509 units put up for sale in February, 1,548 sold within the month. Osaka’s numbers look worse than Tokyo’s, with 30.5 percent drop in new condo offers when compared to a year ago in February. The average price for a new condominium slid by 3.4 percent from last year. Out of 1,548 condos put up for sale in February, 853 sold within the month.
Japanese real estate will recover along with its economy. The question is how well will it ride out the recession and how fast will it rebound afterwards. Since the economy is export based, recovery has to begin and take a hold in other countries, notably the U.S., before it reaches Japan. This means it will take longer for the Japanese economy to get back on its feet. Then, the real estate sector should follow suit.