Japan's real estate boom is turning to bust Speculators jolted, consumers happy

March 28, 1992|By David E. Sanger | David E. Sanger,New York Times News Service

TOKYO -- After soaring to such heights that mere patches of Tokyo were worth more than the entire state of Florida, the price of land, Japan's most precious asset, is falling.

The National Land Agency reported Thursday what real estate agents, bankers, some of the world's biggest manufacturers and scores of bankruptcy judges already knew: Land prices throughout the country have fallen significantly for the first time since 1975.

After years of sharp gains, any declines come as a shock, especially since many speculators are deeply in debt.

Real estate analysts say that the government's survey vastly understates the true magnitude of the declines, in part because large landholders are too frightened to reveal the prices they have received for some of their holdings.

According to the official statistics, prices dropped more than 5 percent nationwide and more than 15 percent in Tokyo. In Osaka and Kyoto, which saw some of the most substantial run-ups in recent years, residential land was down 25 percent to 35 percent.

The real estate bust has propelled the decline of Japanese stocks and provided further evidence of the economic slump that has gripped the country.

Falling property values are in part the deliberate result of government policies, such as discouraging bank lending for speculative land deals, that the country's leadership is now under tremendous pressure to reverse.

Already the decline in land prices has caused a good deal of chaos in an economy that prides itself on stability. Real estate speculators and large corporations that sought to cash in on rising prices now face major losses, as do the banks that backed them. Bankruptcy filings are up sharply.

The battle over land prices here is one of those subterranean tremors that shatters the myth of Japanese harmony. This one has pitted the banks, big manufacturers and real estate speculators against millions of young Japanese who grew up certain that they could never afford a home.

"Individuals and businesses have very different interests," said Tokunosuke Hasegawa, the executive director of the Research Institute for Construction and Economy, which was established by Japan's construction ministry. "Businesses saw through the '80s that Japanese land was a way to easy profits, and now they are hurting and putting a lot of pressure on to stop the decline."

But most people are cheering, and yesterday several of the country's most influential newspapers urged the government to stop putting industry's interests ahead of consumers, as the ruling Liberal Democratic Party almost always does.

"The government should not repeat past mistakes this time," warned Asahi Shimbun, in an editorial that called for land prices to decline an additional 20 percent or 30 percent. "Businesses and individuals that suffered losses in expectation of rises in the price of land should not be bailed out thoughtlessly."

Even the far more conservative Yomiuri Shimbun, while stopping short of seeking further declines, warned there was already evidence that the government was cracking under the pressure and said that the nation's wavering land policy "looks like a repeat of past policy failures, and that could reignite the land price boom."

Joining the calls for a steeper decline is one more interested party: the United States. In trade negotiations over the last several years, U.S. officials and business leaders have called Japan's phenomenally high land prices one of the biggest obstacles to doing business.

In theory, lower land prices should make it possible for more U.S. companies to establish manufacturing and distribution centers in Japan and rent more offices and stores. In reality, the prices are still so high in comparison with the United States that the current decline is unlikely to persuade most U.S. executives that Japan is suddenly a bargain.

In fact, it is not. Since 1986, when the current land boom began, prices in the hottest residential and commercial districts -- notably in Tokyo, Osaka and Kyoto -- have doubled or tripled.

By most measures, less than half of those increases have been washed away in the last 18 months or so. "I think it still has a long way down to go," said Akio Mikuni, president of Mikuni & Co., a bond-rating service that spends much of its time assessing the true value of land held by companies.

The total amount of debt involved in bankruptcy cases in 1989 was only about $9 billion at current exchange rates. The figure soared to $60 billion last year.

Not all of these debts reflected bad real estate investments, but many involved speculators who borrowed when Japan's interest rates were among the lowest in the industrialized world, and secured their loans with the land they were purchasing. Now, they cannot unload it, and there is beginning to be a surplus of office space.

The speculators also included some of the country's biggest manufacturers.

They bought land in the 1980s rather than report huge profits that would have subjected them to more taxes, the specter of new regulation and pressure to reduce their prices. Many borrowed against their land to finance new factories, new offices and new equipment.

The rise in prices led to international comparisons that seemed to border on the ludicrous.

The Imperial Palace grounds in the center of Tokyo were estimated to be worth more than all the land in Florida.

The market value of the whole country's real estate, according to government estimates, exceeded the market value of the United States -- even though Japan is about the size of California. In the Ginza, the commercial heart of Tokyo, a piece of property about the size of a newspaper page was worth roughly $50,000.

There were scores of unlikely beneficiaries. Among them were U.S. companies, which sold office buildings and other property purchased in Japan during or just after the postwar U.S. occupation.

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