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Real estate deflation must be stopped
The overall Japanese economy is seeing a faint glimmer of light at the end of the tunnel, but the nation's real estate market appears mired in continuing darkness.
Announced Thursday by the Land, Infrastructure, Transport and Tourism Ministry, land prices as of Jan. 1 fell an average of 6.1 percent from a year earlier at commercial locations and an average of 4.2 percent at residential locations.
Not only did these figures represent the second consecutive annual decline, they were larger than the drops recorded a year earlier, showing that the deflation of land prices is accelerating.
Land prices fell for 15 consecutive years beginning in 1992, when the collapse of the bubble economy began to make itself felt. They rose in 2007 and 2008, but celebration within the real estate industry that it finally had emerged from its long nightmare proved to be premature.
Dealt a crippling blow by the global financial crisis that began in autumn 2008, land prices started dropping once again and there has been no sign of an upturn since.
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Domino effect of deflation
Falling land prices reduce the value of assets, thereby having a negative effect on individual consumption and other economic indexes. The government must start propping up the real estate market to bolster the economy.
Just how serious the most recent declines are is illustrated by the fact that out of more than 27,000 locations surveyed around the country, land prices increased from a year earlier at only seven--six residential locations and one commercial.
Land prices for both commercial and residential locations dropped in all the prefectures, but the rates of decline in the urban regions of Tokyo, Osaka and Nagoya were larger than those in rural areas.
This seems to be fallout from the bursting of a small bubble economy caused by the sharp increase of land prices at some locations in these urban regions in 2007 and 2008, when land prices rose overall.
The 10 largest drops at commercial locations as of Jan. 1 were all in business districts in Tokyo and Osaka, including Shimbashi in Tokyo's Minato Ward, where the price of land dropped 26.9 percent.
The ministry said in its analysis of the figures that the latest declines were due simply to low demand.
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Govt must support industry
The ongoing financial crisis has made banks very particular about extending new loans, thereby halting the flow of funds necessary for real estate investment. In addition, the number of tenants is decreasing even for buildings in busy commercial areas, as evidenced by the closure of famous department stores due to a downturn in consumption.
What measures would be effective in this situation?
The government launched an eco point system for housing March 8, through which people who build houses or purchase condominiums that are energy-efficient receive eco points based on the purchase prices. The system appears to be having some success in heating up the ice-cold environment for housing investment.
Land price declines also mean lower costs for the condominium industry. We hope the industry will utilize this advantage and do its best to provide housing units at economical prices.
It is also essential for the government to implement measures to support the industry side, such as reducing taxes on real estate.

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