TOKYO (Reuters) - Japanese land prices rose for a second straight year in 2007 on robust demand for prime commercial property, but analysts say the honeymoon is already over with the market hit hard by tighter credit conditions.
By Edwina Gibbs
TOKYO (Reuters) - Japanese land prices rose for a second straight year in 2007 on robust demand for prime commercial property, but analysts say the honeymoon is already over with the market hit hard by tighter credit conditions.
A major slowdown in the flow of money into Japan's real estate market began with stricter oversight from the nation's financial authorities late last year and has further dried up amid the global credit crisis.
"If you talk to companies and we've talked to about 15 in the last two to three weeks, they will either tell you that land prices are coming off or that the increases have stopped," said Andreas Schuster, property analyst at CLSA.
!ADVERTISEMENT!"The lack of financing has sharpened dramatically even in the past few weeks. Developers are holding back on land purchases and funds are finding it hard to get non-recourse loans."
Industry officials say investors are now looking to better opportunities in the United States and Europe to pick up distressed assets, while Japan's battered real estate investment trusts are seen ripe for a shake-out as they struggle to secure quality properties.
Japanese real estate stocks <.IRLTY.T> have slid over 40 percent in value since mid-2007, also hurt by worries that new building codes will dampen construction, and that stagnant wage growth and a shaky economic outlook has hurt demand.
Apartment builders have suffered most, and sales of new apartments in Tokyo fell to a 15-year low for February.
In further signs of a darkening outlook for smaller companies and funds, property investor Reicof Co Ltd <8941.OJ> last week became the first listed Japanese firm to collapse from tighter lending in the wake of the U.S. subprime crisis.
CLSA's Schuster said he expects a mild decrease in land prices for 2008 while Yuji Otani, an analyst at Credit Suisse, said the stock market is pricing in a 15-20 percent decline in apartment prices and that Japan's real estate market could be returning to 2005 levels.
The last two years of rises in Japan's land prices follow 15 years of decline after Japan's asset bubble peaked in 1990.
The average nationwide commercial land price climbed 3.8 percent last year, which follows a 2.3 percent increase in 2006, according to an annual survey by the government's land ministry.
Last year also saw a number of high-profile property deals, including Morgan Stanley's <MS.N> $2.4 billion purchase of 13 hotels from All Nippon Airways <9202.T>.
But prices of business-use properties nationwide are only around 30 percent of their peak in 199O.
Residential land prices rose 1.3 percent in 2007, after edging up 0.1 percent a year earlier, with prices in main urban areas making steady gains although the pace of growth in the most popular areas of Tokyo has fallen.
Major property developers like Mitsubishi Estate Co Ltd <8802.T> and Mitsui Fudosan Co Ltd <8801.T>, however, are expected by many analysts to weather this year's property storm well, bolstered by their strong leasing businesses.
Tight supply of premium office space in big cities like Tokyo has meant rock-bottom vacancy rates, allowing them to raise rents.
(Additional reporting by Noriyuki Hirata and Fumiya Mizuno; Editing by Chris Gallagher)
