Tuesday, June 3, 2008

Japanese Uncle, What is the Japanese for Deja Vu?

Japanese housing Market in trouble. Again

Just what the world doesn’t need: another housing market in turmoil. Protracted weakness in new home sales in Japan suggests that the world’s second biggest economy is experiencing more than a technical blip. Japan is no stranger to real estate boom-and-busts. Land prices – the major determinant in a country where houses are typically pulled down rather than re-sold – only began climbing in 2006, ending 15 years of decline after the asset bubble peaked in the early 1990s. Residential land prices are still half the peak levels. The more recent slide in new home sales began in July after the government clamped down on architects who had been fabricating earthquake compliance certification.

Posted by lvmreader @ 02:20 PM (901 views)
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9 thoughts on “Japanese Uncle, What is the Japanese for Deja Vu?

  • Japanese housing

    Published: June 3 2008 09:51 | Last updated: June 3 2008 12:19

    Stricter rules meant a temporary fallow period was inevitable. But new housing starts have been falling, on a year-on-year basis, for 10 months in a row and were down 9 per cent in April compared with the same month last year. Almost half of all new condominium units that came onto the market in January remained unsold at the end of the month, a 16-year low. This so-called contract ratio has since crept up to 63 per cent, but remains on a 2-3 year downtrend.

    This is particularly worrying since condominiums had been a pocket of strength. Demographics make apartments more appealing: since 1980, the proportion of single-person households has risen by half to 30 per cent. By 2030, according to a government research unit, married couples will account for just half of all households, and roughly half of these will be childless. But now, with higher land and construction costs, developers are less willing to start big projects. Buyers, meantime, are deterred by the sluggish economic outlook and an expectation that prices will fall. Japanese affordability ratios, while more robust than other markets thanks to low interest rates, have deteriorated as house prices rise and wages stagnate. Another market best avoided by bricks-and-mortar investors.

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  • uncle chris says:

    Hmmm – as far as I’m aware, unemployment in Japan is low, interest rates are 0.5%, building land is scarce, and yet prices are declining again – kinda makes a mockery of the UK VI line that the fundamentals of low-IR, high employment and “we’re a crowded island” will support the market. Poor old Japan has had a rough time over the past 2 decades, but at least they still make things.

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  • It’s a bit of a puzzle really. The Japanese stockmarket has been doing well so far this year. Presumably the high oil prices are affecting Japanese consumer confidence?

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  • Evil Speculator :-( says:

    unfortunately for me, i bought japanese property… it looked cheap, but then its getting cheaper…
    despite i bought it 1/8th of its peak value in a very nice central location, it has more to go down ???

    i changed (too late) my mind, there is plenty of land in Tokyo, they just build vertical, they even build land (on the sea !)
    not sure how this land will fare when there is an earthquake or tsunami though…

    on the other hand, im happy to read that housing starts are falling… it will mean less supply… but what i see worries me, i see only cranes
    everywhere, i wish there were much less of them…

    rents is paying for interest + principal+taxes, mortgage rate is less than 3%…. but if rents collapse, and/or tenants move…. and/or if building gets too old…
    ill just finish as good as B&B…

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  • japanese uncle says:

    I understand that the nominal house prices in Japan remain basically the same for the last 10-15 years ago, but the problem here is the labor distribution rate which has been constantly dropping meanwhile, besides the radically widening wealth gap as accelerated unfair change in taxation and health insurance costs. Tax for the wealthy has been cut at the cost of the poor. As a result middle class that used to represent the overwhelming majority (90% according to the opinion poll in the 1980s) is quickly disappearing. Under such circumstances houses are simply unaffordable for average workers. My guess tells house prices must drop by 30% in Tokyo, 15% elsewhere to catch up with the decreasing affordability.

    Incidentally nominal unemployment rate in Japan has not drastically deteriorated for the past couple of decades, while the quality of employment has. Regular employment with full benefits are quickly becoming a thing of the past for the majority of workers who suffer more than 50% drop in real income when their status is changed from regular employee to an irregular temporary employee.

    Redistribution of wealth from the poor to the rich has been and is ruthlessly pursued in the country as same as in the UK and other advanced economies, which in the long run, will never be sustainable. If you want to destroy an economy, just make the rich richer, and the poor poorer by taxation and other policy measures. After all even Bill Gates has just one stomach. An economy without enough effective demand on the side of the millions is destined to collapse.

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  • JU, thanks for the inside information, it helps to understand the bigger picture! On the issues of widening inequality and a middle-class squeeze, there’s an article about that in the FT (free link), saying that in most countries inequality is caused by a lack of education more than anything else. Is the Japanese education system still the envy of the world, or have things changed?

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  • japanese uncle says:

    drewster

    In Japan the ratio of the circumference of a circle to its diameter is no longer taught as 3.14 but 3, which explains all. An argument that inequality is caused by lack of education is an utter rubbish. You can find thousands working in convenience stores with post graduate qualification in Japan, as same as you can find quite a few bartenders with MSc or something in UK.. On the other hand look at the tenant in 1600 Pennsylvania Avenue. I know that he is officially with Yale BA and Harvard MBA, but…..simply the quality of his vocabulary at his command (found in his spontaneous response rather than the ones given by someone in the next room) corresponds to the level typically found among the lower half of the NCOs in the US Army. Pedigree rather than education will be the key criteria in the great shape of things to come, which will cause this world to ruin.

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  • From a friend in Japan:

    Everything’s going up basically. Petrol’s at an all-time high, though still cheaper than in the UK, which seems to rape motorists up the @rse. And certain foods, especially dairy and wheat products, are getting more expensive. Have definitely noticed the difference over the past 6 months or so.

    There’ve been a fair few reports on the news about the various issues. Probably the most alarming for Japanese people is that fishermen are having problems running their boats because of the fuel costs. If the Japanese don’t get their fish there’ll be riots in the streets 🙂

    I haven’t seen any shops in danger of running out, though. Maybe that’s the case in more isolated areas, rather than the teeming metropolis I live in.

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  • I stayed at a hotel in Seoul recently. The bellhop had 2 degrees – one in Chemical Engineering and another in Tourism management. She was studying in New Zealand and during the holidays worked at the hotel.

    I saw the same in Japan, with Australian Japanese working in the top hotels with post grad qualifications.

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