Housing Surplus Leads to Drop in Real Estate Loans
Banks across Japan lent out a total of over 11.71 trillion yen in 2017. For the first time in 6 years, financing in the area of real estate dropped 5.2% in 2017, with banks giving out more loans for construction rather than purchasing. Furthermore, this is the first drop since the Bank of Japan created their monetary easing program in 2013.
In 2016, real estate financing topped 12 trillion yen, while long-term rates have been lowering thanks to BOJ’s negative interest rate policy. It was the highest count in data since 1977. According to data, a significant decrease in retail loaning is what is responsible for this drop. It fell 14.2% (from 3.32 trillion yen) in 2017.
Japan’s inheritance tax law signed in 2015 enabled a spike in construction financing. Those who chose to take advantage of the law found themselves with great success, but are now faced with higher taxes. However, "the spike in apartment construction for tax purposes isn't backed by demand," noted Yasunari Ueno of Mizuho Securities.
Furthemore, the Financial Services Agency and the Bank of Japan have issued warnings regarding over-lending due to bad debts. According to Takahiro Tsuchiya of the Daiwa Research Institute, "Banks have become cautious, given the current rental market and authorities' position,"
Despite the drop in loans being given out to new borrowers, remaining real estate loans reached a record high total of 74.79 million yen. These outstanding loans has been a major source of growth for Japanese financial institutions.