Kathleen Chu

Bloomberg

LAND prices in central Tokyo have started to rise for the first time since 1990, and the trend has spread to outlying districts of the city as Japan’s economic recovery and demand from property trusts and funds help boost values.

Commercial and residential real estate in the capital’s 23 wards gained for the first time since 1990 in the 12 months to July 1, the land, infrastructure and transport ministry notes in a report.

Land zoned for commercial use rose 0,6% and residential areas were up 0,5%, while the decline in nationwide values slowed.

Tokyo acquisitions by domestic real estate investment funds and foreign investors are boosting values in Tokyo’s 23 wards, where land prices rose 0,9% in 2004, says the National Tax Agency.

The rise is supporting gains elsewhere in the capital and other Japanese cities. "The turnaround in real estate prices is broadening out from a few places in a few major cities to a more general stabilisation," says Richard Jerram, chief economist for Japan at Macquarie Securities. "The positive macroeconomic effect is becoming more significant."

Nationwide, commercial and residential land prices dropped for a 14th year, the ministry report showed, with declines of 5% and 3,8% respectively, compared with 6,5% and 4,6% a year earlier. "I don’t think the recovery in land prices will expand to rural areas," says Jerram.

"Those areas are too-small a part of the economy. What matters is what’s happening in and around the major cities, and that’s increasingly positive."

Gains in Tokyo land values have also spread to Nagoya, an hour from the headquarters of Toyota Motor. Six of the 10 commercial sites showing the biggest percentage gains in value were from Nagoya, with one plot in front of Nagoya station rising 31%, the report showed.

"It is now clear that land prices are bottoming out," says Hiromichi Iwasa, president of the Real Estate Companies Association of Japan and CE of Mitsui Fudosan. "The property market is heading for a healthy transformation."

Toyota plans to move some functions to the Midland Square Building, in front of Nagoya station, to improve efficiency. The 47-storey building, to be completed next September, may help drive land prices higher in that city.

A new international airport that opened near Nagoya in February will also help business activities in the region. Japan Airline and All Nippon Airways are adding flights to the airport.