Japan's housing starts fell for a fifth month in November, indicating that stricter rules for obtaining building permits may remain a drag on economic growth in the first quarter of 2008. Ground broken on new homes and condominiums slid 27 percent from a year earlier after falling 35 percent in October and 44 percent in September, the Land Ministry said in Tokyo today.
Prime Minister Yasuo Fukuda said last week he regretted the slump in housing starts that resulted from building-code changes made in June after an architect fabricated earthquake-resistance data. The central bank lowered its evaluation of the economy for the first time in three years last week and the government slashed its growth forecast because of the building fiasco. "Housing investment will probably keep falling through the first quarter, curbing economic growth," said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. "Housing starts are recovering but they still remain at a low level."
The yen traded at 114.20 per dollar as of 4:24 p.m. in Tokyo from 114.24 before the report was published. The drop in housing starts was in line with the 28.5 percent median estimate of economists. Since plunging to a four-decade low in September the drop in starts has eased as the government relaxed the regulations. Builders had complained that the new system was introduced too fast and they didn't have time to adapt to the requirements. "The worst may be over for Japan's housing market,'' said Masaki Fukui, senior economist at Mizuho Corporate Bank Ltd. in Tokyo. "But today's data still showed the Japanese economy is on a soft footing.''
Confidence among small and midsized businesses fell to 44.5 points in December, the lowest in more than four years, a Shoko Chukin Bank survey showed today. Worsening sentiment at the companies, which employ 70 percent of Japanese workers, dims the prospect that wages will rise and spur consumer spending. Housing investment wiped more than 1 percentage point from Japan's 1.5 percent annual pace of economic expansion in the third quarter. The Cabinet Office last week cut its growth forecast for the year ending March to 1.3 percent from 2.1 percent. The easing of the rules "should have a limited impact as the fundamental problems, including inspection system bottlenecks, have yet to be resolved,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Group in Tokyo.
The Real Estate Economic Research Institute said last week that the condominium supply in Tokyo and the surrounding area will fall to the lowest since 1993 this year and may decline further in 2008. The problem is affecting related industries. Demand for kitchenware, which represents about a quarter of the domestic stainless steel market, will decline from January, said Yoichi Saji, head of the Japan Stainless Steel Association. Nippon Steel & Sumikin Stainless Steel Corp., Japan's largest maker of the alloy, said yesterday it would cut output of nickel-based stainless steel by about 10 percent next month.
The 103-member Topix Construction Index has fallen 12 percent since having the biggest gain in more than eight years on Oct. 30 when the Land Ministry announced it would relax the building rules. "The chronic lack of experts in structural calculation forms a bottleneck hindering the building certification process for large condominiums,'' said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo. "This could prolong the impact of the revised building standards code.''
Bank of Japan Governor Toshihiko Fukui said last week that the housing investment slump is temporary. Home building ``has almost stopped decreasing'' though it remains at a low level, the government said in its December economic report last week, upgrading its view on housing
Source: Bloomberg Worlwide