Is the Japanese property market's rebound the real deal? Plenty of investors seem to think so, given the robust performance of Nomura Real Estate Holdings on its Oct. 3 trading debut at the Tokyo Stock Exchange. The stock price of the former unit of Japanese securities colossus Nomura Holdings (NMR) shot up 18% in its first day of trading to $35 a share after the company recently raised about $1.2 billion in the biggest initial public offering in Japan this year. It now boasts a market capitalization of roughly $4 billion.
The enthusiastic response to Nomura Real Estate (which sells and leases condominiums, residential homes, and office buildings) comes after data released last month showed that land prices in Japan's biggest urban centers rose—for the first time in 16 years—in the 12-month period that ended on July 1. "Asset deflation has ended, and companies and people are starting to look at land again as an investment," says Takuji Aida, chief economist with Barclay's Capital in Tokyo. "If domestic demand remains strong, we think land prices will deliver a stronger return going forward."
This could be welcome news for a Japan already enjoying one of its longest postwar economic expansions. The destructive decline in housing prices that began in the early 1990s was one of the biggest reasons Japan couldn't break free of its economic doldrums until a couple of years ago. Japanese households naturally clamped down on spending when their biggest financial asset—their homes—declined in value year in and year out.
NICE AND COMFORTABLE. Now the property market rebound is starting to feed into more positive consumer and business sentiment. Admittedly, the recovery is in its very early days. Commercial land prices rose 2.6% in Tokyo, Osaka, and Nagoya, while residential prices were up only 0.4% in the year ended July 1, according to data released by Japan's Ministry of Land, Infrastructure, and Transport last month.
And nobody sees a return to the hyperkinetic property market that powered Japan's "bubble economy" back in the late 1980s. "The commercial building rental business will be comfortable for the next five years," says Takashi Ishizawa, chief analyst and a property market specialist at Mizuho Securities in Tokyo. Overall, he adds, "I don't think land prices will go down," but Ishizawa doesn't see stupendous gains ahead, either.
Still the rebound certainly does brighten Japan's economic outlook. Business sentiment is at a two-year high. And Lehman Brothers is forecasting Japan will grow by 2.7% this calendar year and 2.8% in 2007. At the same time, Japanese interest rates remain exceedingly low. First-time home buyers in Japan can get long-term mortgages locked in at 2% to 3% rates, depending on the bank and their financial track record.
TIME TO BUY. Investors have also been plowing yen into property-sensitive Japanese stocks and the country's real estate investment trust (REIT) market, that was launched in 2001. The Topix Real Estate Index is up nearly 60% over the past year, according to data compiled by Bloomberg Financial Markets. And the Investment Trusts Assn. reports that investment in Japan's REIT market has increased 77% to $42.7 billion as of August, compared to the year-ago period.
Though Japan's overall population is set to decline in the years ahead, real estate demand is getting a twin boost from older Japanese interested in condos and 30-something buyers who think the combination of cheap mortgages and rebounding prices are a can't-miss opportunity to break into the housing market.
Bremner is Asia Regional editor for BusinessWeek in Hong Kong
With Hiroko Tashiro
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