Japanese Rush to Buy Homes Before New Tax Hike Kicks In
Think taxes are high in the U.S.? Wait until you try to buy a house in Japan.
The current 5% sales tax goes to 8% in 2014 and 10% in 2015. Prime Minister Yoshihiko Noda says the government needs the additional money to stay afloat.
The tax increases will be the first since 1997. Property and fund association groups are asking the prime minister to reduce the tax hikes on home purchases to counter an expected slowdown in home buying after the new rates arrive.
Meanwhile, the rush to buy is on. Published figures in Japan show new housing loans jumped 14.7 percent in the second quarter this year from a year ago, the most since March 2006. The peak for the current buying demand may come in the fourth quarter of 2013, analysts speculate.
NLI Research Institute, a Tokyo-based research and consulting unit of Nippon Life Insurance Co., estimates about 1.3 trillion yen ($16.5 billion) of extra home purchases are expected by the end of March 2014.
Developers and construction companies will probably benefit the most from the increase in demand for housing.
Bank of Japan data show regional banks also stand to benefit from the rush of home loans. Japan's banks offered 2.98 trillion yen worth of new loans for home purchases in the three months ended June 30, bringing loans outstanding to 107.1 trillion yen.
Commercial banks accounted for the biggest share of new loans by lender type, making up 66 percent in the first three quarters of the fiscal year that started April 2011. The Japan Housing Finance Agency's loan share was 15 percent, according to Standard & Poor's. The rest came from other financial institutions.
According to government data, housing investments rose 3.8 percent to 13.1 trillion yen in the fiscal year ended March 31, marking the first increase in five years.
Japan entered a 20-month recession after the tax was raised to 5% from 3% in 1997. Housing investments declined to about 19 trillion yen a year after the initial surge, according to NLI Research Institute.
Before the Asian financial crisis surfaced in 1997, housing investments in Japan surged to almost 28 trillion yen in April 1996, according to NLI Research. Last- minute buying of houses ahead of the 5% tax increase was about 2.4 trillion yen.