Seth Sulkin is the President and CEO of Pacifica Malls K.K., a Tokyo-based real estate asset manager specializing in commercial properties.
Walk around central Tokyo these days and you will see a surprising number of new, empty buildings. While Tokyo doesn’t quite yet look like Bangkok at the height of the Asian financial crisis or Dubai today, even prime districts like Ginza, Omotesando, Roppongi and Azabu Juban are suffering from an excess of building supply and shortage of tenant demand.
It is tempting to assume that some failure of Japanese government policy is to blame, but in reality it is mostly a combination of the Lehman shock, greed and unrealistic development assumptions.
If you go elsewhere in Japan, the situation is vastly worse and yes, it is fair to hold the Japanese government largely responsible. Go to a shotengai (main street) in the traditional commercial core of any regional city and you may find more shuttered shops than those still open for business.
Both directly, and indirectly, through local chambers of commerce, small shopkeepers were among the strongest traditional supporters of the ruling Liberal Democratic Party (LDP) for decades.
Three years ago, the LDP rewarded this support with the passage of three urban planning laws collectively called machi zukuri sanpo that had the effect of halting most new commercial development in suburban and rural areas in order to protect the shotengai.
Ask any old-time shopkeeper or local government official if sales have improved in the last three years and few would give the LDP much credit.
It is hard to argue that Japan needs more shopping centers at the moment, but intervening in the free market to limit competition is unlikely to increase foot traffic for the shotengai.
Shortly before last year’s election that put the Democratic Party of Japan (DPJ) into power, a few ACCJ members and I had the opportunity to exchange views on regional development policy with some up and coming DPJ Lower and Upper House members.
Illustration by Phil Couzens
I sensed a strong interest in regional development issues and hoped that they would move away from the LDP’s failed policies and try something that would actually help struggling urban areas without restricting competition but, so far, this doesn’t seem to be a high priority of the Hatoyama cabinet.
The Hatoyama government also needs to make clear its policy on other forms of intervention in the private sector, such as the bailout of Japan Airlines and other financing schemes of the 100 percent government-owned Development Bank of Japan (DBJ).
As a taxpayer, I haven’t seen any clear explanation as to why my money is being used to save JAL or a cost/benefit analysis for letting it disappear. As a real estate market participant, the kanmin fund—or public/private fund, that was supposed to serve as an alternative to traditional bank financing for struggling J-REITs and boost the overall property market—is not making progress.
Instead, it actually competes directly with private sector banks, albeit poorly, by offering loans at high interest rates requiring full collateral. A couple of years ago when it was targeted for privatization, the DPJ aggressively inserted itself into the private sector, raising all kinds of real estate and other private equity funds and forming joint ventures with private companies.
Now that privatization has apparently been put on the back burner or shelved, the DBJ seems to have gone back to its traditional role of bailing out struggling companies with no other means of borrowing.
And what has happened to Financial Services Minister Shizuka Kamei recently? As a company that theoretically should have qualified for his bizarre scheme to put a moratorium on bank loan repayments, I was eager to give it a try. All of the teeth have been pulled out of his plan, however, and perhaps from him personally as well, as Minister Kamei hasn’t generated headlines for a while now.
