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Japans biggest property developer looks abroad as demand for new homes drops to 48 year low

Not only is the economy likely to be sluggish but fewer young couples are buying houses, according to Takeo Higuchi, chief executive of Daiwa House Industry, Japan’s largest house builder.

This year the industry saw a 20% drop in new house starts to 800,000 and Higuchi is predicting that could fall to just 600,000 in 2010, the lowest rate since 1961 and a long way from the peak of 1.9 million in 1972.

‘The property market will remain sluggish for another year or two because Japan’s economy is in bad shape.

High unemployment and falling wages are scaring away many potential buyers,’ he said.

The nation’s unemployment rate touched a post war high of 5.7% in July and wages have declined for 17 consecutive months.

As a result the Osaka based home builder, the nation’s biggest by sales, is expanding in China and Vietnam as its business declines at home.

Sales are forecast to drop 7.2% to 1.57 trillion yen ($18 billion) in the year ending March.

The company is planning to invest 30 billion yen on housing developments in Dalian and Suzhou in eastern China, and another 30 billion yen in Zhejiang province.

It is in talks with the Chinese developer Baoye Group about a joint venture in Zhejiang to develop luxury houses in the region.
The Japanese government has just announced a 7.2 trillion yen (€81 billion) economic stimulus plan to avoid falling into recession again. It includes a low-interest mortgage programme for homeowners taking out fresh loans from a state-backed lender and incentives for new houses built, or existing homes renovated, using energy-efficient technology.

The package came a week after the Bank of Japan released a 10 trillion yen credit programme in response to government calls for it to counter deflation and a surging yen.
However analysts said the measures may only provide a temporary boost for the world’s second largest economy.

‘The package will be effective in easing strains on an economy struggling with deflation and a lack of demand, but it won’t boost growth potential in the medium to long term,’ said Masaaki Kanno, chief economist in Tokyo at JPMorgan Securities Japan and a former central bank official.