April-Sept. real estate loans log first fall in 3 years

November 23, 2017

Tokyo- New real estate loans provided by Japanese banks in April-September fell 9.5 percent from a year earlier to 5,356.4 billion yen, the first drop in three years, Bank of Japan data have shown.

The decline came as demand for loans to individuals for apartment construction has started to wane.

Fresh loans for apartment construction plunged 17.8 percent to 1,577.6 billion yen in the first half of fiscal 2017.

Such loans had risen sharply thanks to strong demand from individuals who utilized apartment construction as a way to reduce inheritance tax. But the supply-demand balance has now deteriorated.

The number of profit-making apartments is declining, an executive of a local bank said. Construction starts for housing for rent have started to drop as well.

Banks had moved to increase real estate loans in response to strong fund demand from the industry while loan demand from other sectors, including manufacturing, had been weak.

Although the growth in fresh loans has now stopped, the total balance of real estate loans remains high, exceeding the levels during the country's bubble economy era in the late 1980s, on the back of continued ultralow interest rates and many urban development projects.

If financial conditions at real estate companies deteriorate due to a potential land price fall or other reasons, banks' loan collection operations may suffer detrimental effects.

"There is a growing awareness of risks associated with adjustments in the real estate market and credit concentration in the real estate industry, and some banks are becoming more prudent in their lending," the BOJ said in a financial system report released in October. Jiji Press