Photo/Illutration The Minami district in Osaka's Chuo Ward has seen sharp declines in land prices. (Asahi Shimbun file photo)

Land prices in Japan edged down last year, marking the first fall in six years. The national average as of Jan. 1 dipped 0.5 percent compared with a year earlier, after five consecutive years of rise, the land ministry said March 23.

The latest data raises some questions that potentially have huge social and economic implications. How long and how seriously will the consequences of the new coronavirus pandemic, such as a plunge in the number of foreign tourists visiting Japan and restrictions on outings, affect the economy? Will these effects trigger significant structural changes? Related changes and trends require close monitoring.

Land prices in both commercial and residential areas dipped for the first declines in seven and five years, respectively. Downturns were especially steep in urban shopping districts.

In Osaka’s Minami district, for instance, where land prices surged over 40 percent in 2019 in some locations, many areas showed declines of more than 20 percent last year.

The evaporation of inbound tourists depressed the profit outlook for drugstores and other businesses in the district, driving down land prices, according to the ministry.

Given the massive hit the economy has taken from the COVID-19 pandemic, the falls in land prices in 2020 came as no surprise.

The question is whether the trend will be temporary or not.

Land prices, however, flattened out in the second half of the year after sinking in the first half, when the first nationwide state of emergency was declared, according to data concerning locations also covered by prefectural surveys in autumn. As land transactions recovered from the decline to some extent, land prices stopped sliding.

But the number of overseas tourists remains depressed and international spectators will not be allowed to enter Japan for this summer's Olympic Games.

While many things depend on the progress and effectiveness of the nation’s vaccination campaign, there seems to be little prospect of an early return to the kind of boom the tourist industry enjoyed prior to the pandemic.

Since it is difficult to estimate the impact of the second nationwide state of emergency, which has just been lifted, and prolonged requests for shorter business hours at bars and restaurants, it remains anybody’s guess when demand for domestic travel and customer traffic at eating places will recover to pre-pandemic levels.

In some areas, many outlets remain closed.

If the current situation continues unabated, causing additional changes, land prices could be affected accordingly.

As data about land prices in Osaka indicate, the upward trend in prices of commercial land before the outbreak of the virus was driven by expectations of steady long-term cash flows from doing business in such areas.

But it is possible that a growing number of investors and business owners will subscribe to the view that those expectations were overly optimistic.

In that case, areas where land prices soared in recent years could see sharp reactionary falls, possibly causing problems related to real estate loans. This risk should be kept in perspective.

Another big question is whether the public health crisis will lead to long-term changes in people’s work styles and lifestyles. If basic location requirements for offices, stores and houses change, land prices will be duly affected with consequences for demand concerning these properties.

In that case, land prices will not fall across the board. The picture will be a mixed one, with different areas being affected differently.

It is still a tall order to make an accurate overall assessment of the long-term impact of the pandemic due partly to ongoing changes in the global economic environment, including trends concerning interest rates and currency exchange rates. That means the outlook of land prices will remain murky, at least for the time being.

The central and local governments need to start in-depth discussions over land use after the pandemic while paying close attention to both short- and long-term land price trends.

--The Asahi Shimbun, March 27

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