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Even on the official book, land prices in Japan have now turned as of 2nd quarter 2008.   The intention to cool off a perceived urban land bubble, desired by regulatory bodies cutting the money supply to real estate since last year, seems to be taking effect well in the market.

The quarterly “Land Price LOOK Report“, issued by the Japan Ministry of Land, Infrastructure, Transport and Tourism (MLIT) gives an indication of trend only.  As of the 2nd Quarter of 2008 (April through June), the trend was slightly downward for more than 50% of the surveyed locales in Tokyo.  In other cities, the same trend showed with only the very center holding.

We see from the report that the most central, popular areas in Chiyoda, Minato, and Shibuya wards are still on the stable or slightly upward trend but still a steep contrast to the spiraling growth of last year.  Tokyo station (both Marunouchi and Yaesu sides) , Ginza, and Omotesando areas are still on the upward trend, according to the report.

The significant increase in construction costs during the past year has also put pressure on the price of raw land.   Developers now are facing stagnating cap rates and must focus on land price as a last resort to allow a profit on new build projects.  We will likely see an increase in players who lose out on this battle to refinance and sell at a gain in the now illiquid market into bankruptcy or rehabilitation in the coming months.  We will not name names, but we`ve seen a lot of big hawks in the skies around Tokyo recently…

See WSJ article on Developers` Woes.

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