Japan's land prices rise at strongest pace in 34 years

TOKYO (Reuters) - Japan's land prices rose at their fastest pace in 34 years in 2024 with recovery spreading to regional areas thanks to sustained economic growth, in the latest sign of a pickup in the property market, a government survey showed on Tuesday.

Average nationwide land prices, across residential and commercial, grew 2.7% as of January 1, the fourth straight year of gains, the land ministry survey showed.

It was the fastest pace since 1991, before land prices began a long decline in the wake of the bursting of the asset "bubble".

"Japan's overall land prices continued its rising trend amid a moderate economic recovery," the land ministry said.

Gains in land prices were helped by the surge in inbound tourism, which boosted demand for hotels and shops. In about 64% of plots surveyed land prices exceeded the level in 2020 before the pandemic, the ministry said.

But there were some concerns in the market about the potential impact from higher construction costs and more interest rate hikes by the Bank of Japan, the survey found.

The central bank raised the cost of borrowing in July last year after abandoning a years-long radical monetary stimulus programme that was imposed to boost sluggish consumer demand. The central bank hiked rates again to 0.5% in January this year and has signalled a readiness to keep tightening if wages continue to increase.

"There were some voice of concerns about the outlook due to higher construction costs and expectations of higher interest rates," said a land ministry official.

The survey showed both residential and commercial land prices grew for the fourth consecutive year.

Residential land prices grew 2.1% driven by sustained demand for housing in a low interest rate environment. Areas with good transport links attracted many buyers, while in resort and tourist areas foreigner-targeted condominium and local housing also saw strong demand.

Commercial land prices grew 3.9% as popular tourist destinations such as Kyoto and Osaka showed continued increases as Japan welcomed a record number of foreign visitors in 2024. Regions undergoing redevelopment projects also saw continuing growth in land prices, the ministry said.

Areas with semiconductor plants such as Chitose city on the northern island of Hokkaido and Kikuyo town in southern Kumamoto prefecture, showed rises in land prices due to robust demand for housing and offices.

Land prices in industrial areas climbed 4.8%, up for the ninth year in a row, helped by the development of large-scale logistics facilities for e-commerce market.

Japan's three major metropolitan areas surrounding Tokyo, Osaka and Nagoya showed a 4.3% gain in land prices, up for the fourth straight year. Those of the four major regional cities of Sapporo, Sendai, Hiroshima and Fukuoka rose 5.8%, up for the 12th straight year but slower than in 2023 as rising construction costs weighed.

(Reporting by Kaori Kaneko; Editing by Kate Mayberry)