Japan’s MOF land sales faltering

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This selling of land is a directly deflationary/contractionary policy, and all because they think the government needs the funds.

Japan’s MOF land sales faltering

May 17 (Nikkei) — The Ministry of Finance is having trouble selling public land, even in metropolitan Tokyo, amid deterioration of Japan’s real estate market in the wake of the global financial crisis.

Market sluggishness is complicating MOF plans to raise funds for fiscal rehabilitation through sale of such land, including properties acquired as in-kind tax payments, with a series of auctions drawing no bidders.

Last December, the ministry planned to sell a huge parcel of 7.7 hectares in a coastal area of Chiba. Some condominium developers had expressed interest in the property during a pre-auction briefing.

But the MOF, which manages public land, called off the auction at the last moment, realizing that no bid would be made.

The Chiba lot holds some 1,300 abandoned apartments which previously housed government workers, but have remained vacant since March 2006.

As recently as 2007, real estate developers flocked to build condos on available land in a competitive wave extending to Chiba. At that time, the vast coastal property, a rare offering, could have sold “on the spot,” said an official involved in the canceled auction.

Government-own plots often sell well because their titles are usually free of unsettled claims. This is especially the case in big cities and their surrounding areas, which contain active real estate markets.

But there remains a scarcity of buyers because the global economic downturn has forced many financial institutions to curtail financing of real estate deals.

In recent MOF auctions, the ratio of successful offers in Tokyo’s 23 wards plunged to just above 50% in the second half of fiscal 2007 from 100% in the first half. And the ratio fell to nearly 30% in the first half of fiscal 2008 and 24% in the second half.

A plan worked out by the ministry in 2007 envisions raising 2.1 trillion yen by the end of fiscal 2015 through the sale of public assets, such as vacant land like the lot in coastal Chiba. The proceeds would be used to finance fiscal rehabilitation.

But a substantial delay in implementation appears unavoidable due to the weakness of the property market.
Private-sector auctions often resort to “bulk sales” to stimulate demand for unpopular parcels of land by combining them with lots expected to draw strong demand. The ministry does not have this option, as government-owned lots must be sold at “fair prices” under the public finance law.

Another reason for the difficulty in attracting buyers is that the ministry is eager for higher-priced deals and often “lacks flexibility,” says a real-estate appraiser.

Prolonged vacancies of public land may not only depress the local real estate market, but also cause security problems in some cases. In addition, the government’s cost of managing unused properties continues to escalate.

When an advisory panel to the finance minister convened in late February to discuss the sale of public land, MOF officials complained they are caught in a catch-22 — raising sorely needed funds through property sales is a thorny process amid real estate market conditions that continue to deteriorate.

(The Nikkei May 15 morning edition)