As many as 19.1 million people, or 15 percent of the Japanese population, are in the 35 to 39 and 40 to 44 year-old age groups, the second- and third-largest, government data show. Combined, the two groups are roughly double the size of the postwar baby boom generation now in their early 60s, according to the Ministry of Internal Affairs and Communications.
“Japan is in a demographic sweet spot,” said Jesper Koll, head of equity research at JPMorgan Chase & Co. “Children of baby boomers are now at their late 30s and early 40s. That is where the demand is going to be coming from.”
So-called echo baby boomers reaching the age to purchase their first home will give a boost to a housing market that accounts for about 15 percent of Japan’s gross domestic product at a time when the nation is struggling to recover from last year’s earthquake, some companies are suffering from worse-than- expected earnings results, pushing up the unemployment rate.
The Bank of Japan has maintained rates near zero for 17 years, benefiting home buyers, who are enjoying one of the lowest financing costs in the world.
The 10-year fixed-mortgage rate has declined to 3.65 percent at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest listed bank, compared with 4.1 percent a year earlier, according to data compiled by Bloomberg.
Low Mortgage Costs
The country’s home loan costs may decline further as the benchmark bond yield stays around 1 percent. It was 1.1 percent on March 16 after closing the year below 1 percent on Dec. 30 for the first time since 2002.
“Japanese banks are sitting on a lot of cash because of the Bank of Japan’s monetary easing policy and the yield has declined,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo, who forecasts a 4 percent increase in housing starts for the year ending March. “The housing market is quite strong because the bond yields remain low and the Japanese government provides housing incentives such as tax breaks.”
Japan’s housing starts rose for a second year in 2011, gaining 2.6 percent to 834,117 units, according to the land ministry. The gain in housing starts has boosted mortgage sales for the first time since at least 2007, according to a report from Credit Suisse Group AG. They surged 44 percent to 2.61 trillion yen in 2011 after the government introduced fixed-rate mortgages, the Zurich-based lender said.
Housing Starts
Housing starts gained to the third highest level in history in 1987 when the baby boomers, those born from 1947 to 1949, reached the age to buy their first home, government data showed. The age of home buyers who are between 35 and 39 and in their 40s represents a market share of 44 percent, according to a survey by Recruit Co., a Tokyo-based human resources and information service provider.
About 86 percent of Japanese own their own home, based on a survey of 7,145 people nationwide, conducted last year by Zentakuren, a real estate foundation.
The central bank indicated on March 13 that it will keep using monetary policy to tackle deflation.
The BOJ unexpectedly added 10 trillion yen ($121 billion) to an asset-purchase program and set an inflation goal on Feb. 14 in a bid to revive the economy.
About 20,000 job cuts have been announced so far this year, according to data compiled by Bloomberg. The unemployment rate rose to 4.6 in January from a three-year low of 4.1 percent in September. BOJ Governor Masaaki Shirakawa said on Feb. 6 the nation’s economic condition is “severe” because of deflation and the strong yen.
Tax Breaks
Japan’s economy contracted less than the government’s initial estimate last quarter, shrinking an annualized 0.7 percent in the three months ended Dec. 31, the Cabinet Office said on March 8, compared with a preliminary estimate of a 2.3 percent contraction.
The government has introduced tax breaks and low interest rate policies in a bid to boost the housing market. It recently extended tax breaks on mortgage payments and increased the credit limit for donations made for home purchases by as much as 50 percent to 15 million yen.
Those changes have made it easier for the second generation to purchase their homes, Masahiro Mochizuki, an analyst at Credit Suisse, said.
“The government’s policy will help boost the housing market,” said Mochizuki, who estimates down payments at about 10 percent of the total cost of a home. “Without a large amount, people can easily purchase a house with low interest rates.” The Japan Housing Finance Agency’s fixed-rate mortgage program covers up to 90 percent of a home’s purchase amount.
Doing More
Even as mortgage rates remain low, more can be done to boost the housing market, according to Deutsche Bank’s Otani.
Tax breaks offered by the Japanese government to boost home purchases are only about one-tenth of tax incentives in the U.S. and less than the 70 percent that is available in Germany, according to data provided Japan’s land ministry.
Japan has been blighted by price declines and sluggish economic growth since an asset bubble burst two decades ago. An index of residential land prices has slid by half from its 1991 peak, Japan Real Estate Institute data show.
The central bank’s decision for additional monetary easing and setting an inflation target of 1 percent will help boost land prices in the six major cities by 10 percent, Otani at Deutsche Bank said in a report.
Housing-related expenditures and production totaled 67.5 trillion yen, according to the land ministry. That includes 41.4 trillion yen of spending on construction and electricity and housing related production is estimated at 26.1 trillion yen, it said.
“Housing is the one sector that has the highest multiplier,” said Koll of JPMorgan. “You buy a house, you buy an air conditioner, you buy a washing machine and you buy a television. Nothing gets the economy going as housing.”
To contact the reporter on this story: Kathleen Chu in Tokyo at Kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net
To contact the editor responsible for this story Andreea Papuc at apapuc1@bloomberg.net; Rob Urban in New York at robprag@bloomberg.net
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