Analysts indicate property prices in Japan may be near bottom

Property prices in Japan may be near the bottom because transactions are picking up as loan default rates begin to decline, it is claimed.

According to Yuji Hashimoto, a director at ratings agency Standard & Poor’s the market is starting to see some property transactions taking place at discount of about 20 to 40%.
‘This tells us that the impact of loan default for the property prices is likely to be limited going forward and property prices may have bottomed,’ explained Hashimoto, director of the structured finance ratings division at S&P.
The percentage of default in loans backing commercial mortgage backed securities rated by the US rating company narrowed to 19% in the first quarter, a second straight decline, and down from a peak of 63% in the third quarter of last year.
Investors including Chuo Mitsui Trust & Banking Company and CLSA Capital Partners have said they will invest in real estate in Japan this year after the nation’s commercial land prices fell to the lowest in at least 36 years.
At least 115 billion yen ($1.25 billion) of properties backing CMBS have been sold by special servicers as collateral since the second quarter of 2009, according to Fitch Ratings.
‘The best time to invest is before things hit bottom, because if everyone were to agree we are right at bottom, they would all come rushing back in. If you have a longer term outlook, now is a very interesting time to be looking,’ said Buddy Ferrie, a general manager of the investment division at property consulting firm Colliers Halifax in Tokyo.
Japan’s commercial land prices fell 6.1% in 2009 from a drop of 4.7% a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in March. Values are at their lowest since the ministry began collecting comparable data in 1974.
Faced with decline in property prices, building owners are injecting capital to refinance loans or returning properties to lenders as collateral when loans are coming due or being reviewed by banks.
‘Larger loans are more likely to be rescued or receive extension of repayment because many people believe that it is not wise to sell large properties in the current market conditions. As a result, they are less likely to default,’ said S&P’s Hashimoto.