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News Release

Trends of Land Prices in City Centers and Peripheries Require Separate Observation
- A Comparison of Land Prices Based on Grid Square Statistics with Fundamentals -

September 26, 2007

Overview

The upward trend of land prices is accelerating for commercial zones, especially in and around Japan's three largest cities, and some observers are concerned that a bubble may be forming once again, but a comparison of economic indicators with land prices at the national and prefectural levels yields no clear indication that there has been any major deviation from the profitability line.

However, it is only in a few districts and locations that the rise in land prices has been significant and because land prices have been falling or have only risen a little way in most of the remaining districts and locations, the problem remains that studying average price trends at national or prefectural level may not give a true picture of the polarization that is taking place.

Calculations based on grid square statistics for small geographical units obtained by dividing Japan up using a grid, so as to give as detailed an analysis as possible and take account of the fact that a sharp rise in land prices has occurred in just a few areas, in central Osaka, the percentage price increase obtained from the profitability perspective, like the rise in actual land prices, is sharp, indicating that the rise in land prices is by no means far removed from local economic fundamentals.

On the other hand, as the decline in the risk premium of real estate investment has at the very least made a contribution to the rise in the calculated value based on the earnings capitalization model, if the risk premium continues to fall and if the contribution made by this factor should result in a continued sharp rise in land prices, it will doubtless be necessary to be cautious of the current bullish stance on investment.

The greater the distance from city centers, the smaller the rise in land prices has been and the scope of the rise in land prices appears to have been limited to a few city center areas, but as it is also possible that the amount of retail sales is falling in areas other than city centers, the question remains whether the rise in land prices, however small it may be, is compatible with local economic conditions.

Because the rise in land prices in areas other than city centers is likely to make the cost of acquiring real estate greater than the retail sales and profits that can be expected and to increase burdens such as land costs and fixed asset tax liabilities, there is a risk that it will be a hindrance to companies and individuals planning to continue business operations or establish new business operations.

Although the recent trends in land prices are not a matter of immediate concern, the trends in city centers and other areas each have their implications, and it is essential that their future direction should continue to be monitored.

For more information on the content of this report, please contact Kiyoshi Yoshimoto , the Japan Research Institute, Limited.

Tel: 06-6534-5204

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