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Deregulation fuels Tokyo building boom

Construction cranes surround the new 37-story Marunouchi Building last Tuesday. Large-scale development projects are booming in Tokyo despite the nation's economic picture. PHOTO: REUTERS

To revive the moribund Japanese economy, you need to revitalize its power center, Tokyo.

That seems to be the thinking of the Japanese government, which is encouraging large-scale development projects in the capital and two other big cities, Osaka and Nagoya, through deregulation.

While many analysts agree that much of Tokyo -- with its mess of flimsy buildings and houses vulnerable to earthquake -- - needs rebuilding, they say the government has no real idea of what it wants to achieve.

"The government does not have a vision for urban planning. Right now, its policy is nothing more than making lots of skyscrapers," said Tokunosuke Hasegawa, professor of real estate studies at Meikai University near Tokyo.

Development projects are booming in Tokyo despite Japan's decade-long economic stagnation, with major work under way in the main business area, Marunouchi, and areas like Akihabara, which resembles a big, neon-lit electrical goods store.

"The government's deregulation has in part made huge building projects possible," said Takashi Ishizawa, senior analyst at Mizuho Securities.

Among other things, it has eased rules on regulations covering the size and height of buildings in each area and has allowed the introduction of what are known in the US as transferable development rights.

Thus, in Marunouchi, Mitsubishi Estate Co is building a 29-storey building, seven floors higher than is normally allowed, using development rights transferred from the nearby Tokyo central rail-way station.

"The government is accelerating supply where there is already a huge over-supply," said Tohru Matsumura, a research fellow at NLI Research Institute.

The construction of such high-rise buildings is boosting land prices in Marunouchi and some hope that more deregulation may help stop the fall in land prices in general -- a major factor behind the deflation that has plagued Japan for over three years.

However, overall, Tokyo's property market looks likely to remain depressed, not least because of a glut of office buildings coming on to the market, on top of the record amount of new office space -- more than 10 times as much as the Empire State Building in New York -- expected this year alone.

The office vacancy rate in Tokyo has been rising for the last six quarters to reach 6.1 percent at the end of last year and is likely to continue rising.

The government is also planning deregulation to promote the construction of high-rise housing in central Tokyo, which it says can reduce the stress of notoriously long commuting time.This, too, is ill-advised, critics say.

In the Koto district, for example, the construction of large-scale residential buildings has progressed so quickly that local authorities have called a halt since they do not have enough schools to cater for the new families.

On the other hand, analysts say many parts of Tokyo are in dire need of renovation.

The city is full of inconvenient property, like the so-called "pencil buildings" -- tall and narrow, often with only one narrow room on each floor, the result of fragmented land ownership.

"We have lots of areas where weak buildings are congested and an earthquake could flatten the whole area. They are the ones that need to be revitalized," Hasegawa said.

"But because that takes a lot of time, the government is simply building skyscrapers, for the sake of an immediate effect on the economy," he said.

"Urban policy should not be used as short-term policy, even though it does have some short-term effects on the economy," said Toshihiko Okino, senior analyst at UBS Warburg.

"The government needs a grand design. It needs vision on how Tokyo should be," he said.
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