White Paper on Land 2003
Chapter 1 Socio-economic Factors and Utilization Issues Affecting Land Use in Japan
Section 1 Current Movements in the Land Market
1. Individualization of Land Price Formation Based on Actual Demand 
After 12 years of continuous land-price decline, the current situation indicates that in future substantial profits cannot be realized by simply owning land. It is now recognized that "added-value is produced only by making effective use of land" whether by corporations or individuals, and that the land market in Japan is changing structurally towards a market driven by actual demand.
In these circumstances, the trend towards "individualization of land prices" has accelerated further as fluctuations in land prices vary from land-site to land-site, based on differences in the level of profitability and convenience, and on the conditions attaching to each land parcel.
Chart: Land Price Fluctuations around JR Tokyo Station
Land Price fluctuations
during the bubble period (measured in 1987)
Land Price Fluctuations after
the bursting of the bubble (measured in 1995)　

Current Land Price Fluctuations
　　　　　　　　(measured in 2003)
When examining the movement of land prices after the bubble period (from the late 1980's), we note that land price increases have been higher where the original land price was higher during the bubble period. Also, after the bubble period, the extent of land price decline has been greater where the price of the land concerned increased more during the bubble. Currently, land prices have leveled off or increased where profitability and convenience are high, but have continued to decline in other areas.
　

 

 

Chart:    Average Land-price Trends at Certain Distances from Stations in Residential Land in Hachioji
Source: "Published Land Prices" by Ministry of Land, Infrastructure and Transport


2. Trends in Land Transactions
　

(a) Changes in Corporate Activity

　
For a long time, corporations in Japan had a strong preference for owning their own land. However, with the continuous land-price decline after the bursting of the bubble economy, there has been a change in their thinking the old perception that land-ownership is lucrative has been in decline, and corporations are now attaching more and more importance to the profitable use of land.

　

Chart: Perceptions of the Advantages of Owning Land in the Future

Source:

"Corporate Business Survey of Conditions of Land Ownership and Use" (FY 2002) by Ministry of Land, Infrastructure and Transport

　

Because of the decline in land-prices, corporations which own land have experienced deteriorating balance sheets, and finance-raising has also become difficult due to reductions in the collateral value of their land-holdings. In order to raise funds directly from the capital market, therefore, corporations tend to dispose of their under-performing assets, and have become careful about purchasing land.
 
On the other hand, the decline in land prices has also worked positively for corporations, making it possible for them to reduce business costs and conduct their business at better quality locations, under better conditions. The decline in land-prices and rents is also expected activate land transactions and encourage urban regeneration.
 
Based on land prices published in 2003, it has emerged that some sites have achieved price increases of almost 10%, and that transactions have been particularly active for land-sites enjoying high profitability. When we look at the amount of land purchased (i.e. land investment) in the Institutional Sector of National Economic Accounting, we see that corporations in the non-financial sector became net-buyers in 2000 and 2001. It is also observed that many corporations could not dispose of their land at the pace they desired. On the other hand, those corporations which have purchased land-sites for their own use have mainly acquired land that will deliver higher profitability
 
Chart : Trends in the (Net) Amount of Land Purchased by Corporations
 
 
Source:  "Annual Report on National Accounts" by Cabinet Office
Note1:  the (net) Amount of Land Purchased by Corporations represents the sum of net purchase (net sell) of lands by financial corporations and non-financial corporations
Note2:  On and after 1990 93SNA is used and before 1990 68SNA (1990 basis) is used.
　
Chart Reasons for the Under-Utilization of Land
Source:  "Corporate Business Survey of Conditions of Land Ownership and Use" (FY 2002) by Ministry of Land, Infrastructure and Transport
Given the economic situation and current circumstances in the land market, corporations have also been changing their management approach. In order to increase business profitability, they have been reducing land-related costs and the risks created by fluctuations in asset values, mainly through leasing their company premises. Under these circumstances, it appears that real-property securitization as a means of effectively diversifying risk through off-balancing and fixed-term land and tenant leaseshave become widespread.


<The Soil Contamination Problem and Promoting Land Transactions >
 
These days, many cases of land-use conversion are not going smoothly and the land concerned is left underutilized after soil contamination is discovered. In situations where soil contamination is discovered after purchase, the buyer either gives up development or dissolves the purchase agreement. Current thinking about countermeasures for soil contamination risk in land transactions differs according to the type of contamination involved and the type of land-use intended. Corporations are currently seeking ways to conduct risk management for soil contamination.

　

 

(b) Demand for Land by Individuals

 
 The number of citizens who consider "land a lucrative asset compared to postal savings, bank deposits and stocks" has been on the decline over the past 10 years, but nowadays the proportion of people who consider "land a lucrative asset" compared to the total is almost the same over the years.
 
 In a comparative evaluation of land and other assets, when asked the question "what is the most superior asset in terms of profitability", the highest response was "land" (excluding those answering "no idea"). To the question "what is the most superior asset in terms of financial security", the second highest response was "land", coming after "postal savings and bank deposits".
It appears therefore that although the actual lucrativeness of land has declined in absolute terms, in comparison with other assets, a large number of people still believe that land is more lucrative.

 

　
Chart:  Land as a Lucrative Asset Compared to Postal Savings, Bank Deposits and Stocks
 
  
Source: "The General Public's Opinion on Land Issues" by Ministry of Land, Infrastructure and Transport

 

Chart : Superior Assets in Terms of Profitability
  
  
Source:  "The General Public's Opinion on Land Issues" (January 2003) by Ministry of Land, Infrastructure and Transport

  

Chart : Superior Assets in Terms of Financial Security
  
  
Source:  "The General Public's Opinion on Land Issues" (January 2003) by Ministry of Land, Infrastructure and Transport
House selection criteria have changed, and the number of relocations to new homes has increased through diversification of lifestyle and variations in the composition of households. In relation to house selection, 80% of citizens wish to own their house, but the proportion who do not mind living in rented houses has been increasing. Of those who currently live in rental houses, 36.7% responded that they do not mind living in a rented home.
  
As to the reasons for this growing preference to live in rental houses, it appears that financial determinants are on the decline, and the desire to be able to relocate easily is becoming the trend.
  
The population's thinking in relation to their living arrangements has also been changing to reflect the maturing of the country's social structure, including the dwindling birthrate, a rapidly aging population and changes in composition of households. In these circumstances, it is important to promote the rental and secondary housing markets in which people can relocate according to their particular stage in life.
 

 

Chart : Preferences Between Owning and Renting Houses
  
  
Source:  "The General Public's Opinion on Land Issues" by Ministry of Land, Infrastructure and Transport
　

 

Chart : Reasons for the Growing Preference to Lease Land and Rent Houses
  
  
Source:  "The General Public's Opinion on Land Issues" by Ministry of Land, Infrastructure and Transport

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