Monday, March 28, 2005

Japan's real estate still under bubble shadow

TOKYO, March 28 (Xinhuanet) -- Whereas land prices in large citiesacross Japan are picking up, the overall market is still on the decline, a lingering repercussion of the 1990s property foam, recent government statistics showed.

The statistics released last week by the Land, Infrastructure and Transport Ministry showed that the nation's average land prices dropped 5.0 percent in the year to Jan. 1, 2005 for the 14th consecutive year.

The residential land prices dropped 4.5 percent in the year, while that of land for commercial use fell 5.6 percent.

Compared with 1991 when the bubble economy started breaking, the residential land prices have dropped by 46 percent to the pre-bubble year of 1985, and the commercial land saw its prices shrinking by 70 percent to the lowest since 1974.

Back in late 1980s, Japan's economy was on a rapid rebound track after the global oil crisis. The easy monetary policy adopted by the central bank to stimulate the economy attributed toa tremendous flow into property and stock markets of the surplus money which could not find other satisfying investment projects. As a result, the real estate prices skyrocketed.

Failing to realize the perilous consequences of the property foam and make appropriate assessment about the market landscape, Japanese lenders were scrambling to give loans to developers and construction firms, which aggravated the vicious circle of hiking house prices and ballooning credits.

In 1988, the commercial land prices index of the commercial land in Tokyo nearly tripled compared with three years ago. In thedowntown Central Ward, the land prices quadrupled.

By 1990, the land prices in Tokyo was on par with those of the entire United States, creating an unprecedented property myth.

In 1991 alone, the 12 leading banks poured 50 trillion yen (470billion US dollars) in loans into the property sector, a sum accounting for one-fourth of the total loans they gave in that year.

Yet, the bubble blew in the very same year, when the stock and property markets suffered a nosediving. The repercussion has been gnawing at Japan's economy since then.

Not only the developers and construction companies, but also almost all major Japanese major enterprises were involved in the real estate spree, and some had gone bust.

The firms in the property and construction sector accounted forthe bulk of the bankrupt companies.

In 2000, some 6,000 such companies went broken, or 33.6 percentof the bankrupt businesses.

A total of 28 listed went bankrupt in 2002 with property firms taking up more than one-third, both setting a record after the World War II.

The financial industry, which was stunned heavily in the rampage, became the chief criminal in Japan's decade-old economic depression.

Their generous loans later came out to be the poison for the debt-laden property firms. And the lands in pledge finally translated into growing bad loans and declining capital adequacy ratio as the values kept plummeting.

The piling non-performing loans weakened the banking system. Three of the top-ten banks closed for bad capital turnover, let alone numerous middle- and small-sized financial institutes.

To bail out the struggling banking industry, the central government has pumped about 23 trillion yen since 1997.

Notwithstanding, the average capital adequacy ratio of major banks once dropped to about 8 percent, barely above the bottom line of the Bank for International Settlement. Credit ratings of Japanese banks were repeatedly lowered, leading to hardship in financing in the world financial market.

Tightened credit policies made by cautious surviving banks suffocated enterprises which depended largely on loans. In turn, the grim lending policies further produced bad loans as the money-strapped borrowers were not able to improve their operational performances.

By the end of March 2003, the total amount of non-performing loans of Japanese banks still stayed at up to 44.5 trillion yen (418 billion US dollars).

Economists said the long-standing depression following the collapse of the economic bubble was mainly due to incessant bad loans largely as a result of the ever-declining prices of real estate in pawn.

They blamed the financial policies of the government for the badly unhealthy real estate sector.

The yen appreciated tremendously in the wake of the signing of the Plaza Accord in October 1985.

In order to ease the appreciation pressure and galvanize the domestic consumption, Japan had been conducting an ultra-easy money policy. The practice encouraged a huge flow of surplus moneyinto stock and real estate markets.

The rate leverage imposed by the financial watchdog that finally detected the bubble proved too late to work. Then Finance Minister Kiichi Miyazawa admitted later that the faulted monetary policy played a leading role in the forming of bubble economy. Unchecked lending by the profit-seeking banks and speculative activities of enterprises and privates also were at fault, they said. Enditem