Although land and home prices continue to drop in Japan, the latest decrease has been the smallest in 21 years of declining values, according to the most recent report from Japan's Ministry of Land, Infrastructure, Transport and Tourism.
Low interest rates and tax incentives are supporting a housing demand in the island country of 128 million residents.
The nationwide average price slid 2.7 percent as of July 1, compared with a 3.4 percent decline a year earlier. The peak of Japan's bubble economy arrived in the 1980s. .Japan's government expanded rebates for homebuyers in 2009 to boost sales, giving a 10-year tax break on properties bought before 2014.
The drop in land values may ease further, helped by demand before a planned consumption tax increase, the nation's first since 1997
Bloomberg reports Masanobu Komoda, president of Mitsui Fudosan Co., Japan's largest developer by sales. as saying, "The recovery trend in land prices has become clearer. As the government plans to increase the consumption tax, we would like to see additional measures to support and boost housing demand."
The drop in commercial land prices narrowed to 3.1 percent from 4 percent a year earlier, while the decrease in residential values slowed to 2.5 percent from 3.2 percent, the land ministry's data showed.
Property acquisitions by Japan's real estate investment trusts, known as J-REITs, have also supported prices. Assets bought by J-REITs expanded at the fastest pace in four years, rising 8.8 percent to 8.7 trillion yen ($111 billion) as of June 30 from a year earlier, according to Sumitomo Mitsui Trust Research Institute Co., a Tokyo-based consulting company.
Moody's Japan K.K, however, maintains in a recent report, credit worthiness of Japanese real estate operating companies and J-REITs as well as commercial mortgage backed securities deals will remain weak in the medium term because cash flows from office buildings, which make up the majority of their portfolio, will continue to decline.
"The demand for office buildings in Tokyo will remain lukewarm, owing to anemic economic growth, exacerbated by oversupply," the New York City-based rating company said in the report. "The latter will result from a build-up in inventory in 2012."
Declines in prices in Tokyo, Osaka and Nagoya, the three major metropolitan areas, slowed to 1 percent, from a drop of 1.9 percent a year earlier, according to the report. Prices in rural districts slipped 3.4 percent from a 4 percent slump a year earlier.
The most expensive piece of commercial property remained in Tokyo's Ginza shopping district, where land can cost up to 19.7 million yen per square meter. Tokyo's Chiyoda ward, where the Imperial Palace is located, had the nation's priciest residential land at 2.78 million yen ($35,682 US) per square meter or $383,938 per square foot (One square meter equals 10.76 square feet).