The news that land prices throughout Japan have risen 0.3 percent over last year’s prices was covered extensively by the media last month. Though 0.3 might sound negligible, it’s the first time in 30 years that the change was in the positive direction. Of course, land values in the three major metropolises have always gone up in a net fashion to a certain extent, but prices in what are called “regional areas,” meaning the countryside and smaller urban metropolises far from Tokyo, have either gone down or remained stagnant. The big news is that this increase has happened two years in a row, thus proving it isn’t just a fluke. According to the Asahi Shimbun, four regional capitals led the surge—Sapporo, Sendai, Hiroshima, and Fukuoka. During the pandemic these cities saw land price increases of between 4 and 6 percent, but last year the change was plus 8.1 percent. As it happens, rural land continued to lose value during the pandemic, but on average last year it leveled off: prices in 27 of 38 prefectures surveyed went down as a whole, but the prices in the capitals of 20 of these prefectures either increased or remained the same, further proof that land value may finally be turning the corner, so to speak. 

What this means, according to Asahi, is that people are moving into these regional cities in substantial numbers, thus boosting hiring and education, which in turn spurs redevelopment. So far the most publicized examples of this trend have been the introduction of semiconductor factories into areas where there was previoulsy little industrial development, namely Chitose in Hokkaido and Kikuyo in Kumamoto. In the former, the company Rapidus is building a factory that will open in 2027, employing about 1,000 people. Local realtors told Asahi that individuals and businesses are snatching up property near Chitose Station, the main train hub in the area, which is about 40 minutes from Sapporo. Some realtors claim that there is no more vacant land to be had around Chitose Station, and what is available slightly farther from the station is “very expensive.” By the same token, TSMC, the Taiwan semiconductor maker, plans a factory in Kikuyo, and the news has caused land prices in the area to skyrocket. One reason for the unusual increase is that a lot of people who own land in the area are not selling at the moment, but waiting for land values to increase even more before they put their properties on the market. 

Another reason for regional increases is that retired people are selling their homes and moving into apartments and condominiums in regional cities, thus boosting property values in those cities. One developer told Asahi that in Yamagata City a new 70-unit condominium still under construction is almost sold out and cites the availability of services in the area as the main appeal: a ten-minute walk to Yamagata Station, and within a 5-minute walk 3 hospitals, a full range of public schools and a retail district. Even with prices going up, a unit in the new condo is very affordable, 3LDK for only ¥35 million, including tax. One 88-year-old woman told Asahi that she moved to an apartment in the area after selling her house and since then her life “has become easier because I don’t have to shovel snow.” Asahi notes that land prices in Yamagata Prefecture are still dropping, but prices in Yamagata City have increased for 9 years in a row. 

The same trends can be seen in Iwate and Okayama prefectures, where overall land prices have dropped 0.1 percent. However, in their capital cities, Morioka and Okayama, prices have increased by 2.8 and 1.7 percent, respectively. As one local real estate consutant puts it, “Land attached to convenient areas in regional centers is selling well, and local governments are centralizing functions, usually near transportation hubs so as to create compact urban districts. This has been a trend for a while, and will likely continue.” Consequently, more developers are moving operations to these regional centers. Mitsui Real Estate has built more than 200,000 condominium units in regional capitals in recent years. The demographics driving this trend are two-income households and retired people with savings. Some developers in Niigata and Koriyama are even building luxury condos, since, as long as interest rates remain low they think they can sell almost anything. 

Another article in the Nishi Nihon Shimbun, headquartered in Fukuoka, talks about how the return of tourists is already fueling land price increases, not to mention overseas investors encouraged by the continuing low exchange value of the yen, which, of course, prompts the question: Do these increases point to a bubble? Fukuoka’s increase was second only to Sapporo’s nationwide, and that includes commercial properties, which are undergoing redevelopment. However, vacant office space is now 6 percent and rising. Conventionally speaking, when the rate breaches 5 percent it is considered a sign of over-supply. Many office building under construction still haven’t signed any tenants, thus leading to speculation that rents will drop considerably in the near future. If that happens, then land prices will reverse and start to drop again. Even the aforementioned boom town of Kikuyo may not be able to maintain its price levels for much longer. In some districts prices have risen by as much as 30 percent in the last year, but once construction of the TSMC factory is complete and related businesses find their footing, the feeling is that land prices will stabilize and then start to drop, since they may be overvalued. 

Meanwhile, Tokyo property prices continue to go up as more investors, many from overseas, snatch up expensive new condos. In some areas of the 23 wards, prices for luxury digs have increased by as much as 60 percent since last year, driving the average price of a new condo in the city center over the ¥100 million line. Though the real estate industry is delighted, economists worry that such increases are not sustainable if they outstrip CPI or wage increases. The market may be too hot.

A recent discussion on the web news site Democracy Times focused on the relation between land prices and inflation. Years ago, when the low interest policy was initiated by the Bank of Japan to spur inflation it took years before prices actually went up, and now that they finally are, the bank is crying victory at last, but the participants in the discussion said that without a concurrent rise in wages, this rise in land values could end up being nothing but another bubble, and one thing about bubbles is that you don’t really see them until after they burst. As it stands, the inflation Japan is now experiencing is having the effect of depressing real wages, which is not what the BOJ envisioned. If it is a bubble and the bubble breaks, will that mean another million or so vacant homes that can’t be sold in the long run? Only time will tell.