Japan bubble offers lessons

Japan bubble offers lessons
Joongang Daily

August 13, 2005
TOKYO ― Japan's real estate "bubble" in the 1990s was exacerbated by over-eager lenders, and an irresolute and uncoordinated government response, three former and current Japanese government officials at the center of the crisis said 15 years after the bubble burst.
The three, including Representative Tamisuke Watanuki of the Liberal Democratic Party, who was serving as chief cabinet secretary director general of the Ministry of Construction in 1990, recently talked to the JoongAng Ilbo about what they did wrong, hoping to offer lessons for the current Korean government's fight against real estate speculation.
"Financial institutions were most to blame for the real estate bubble," said Mr. Watanuki. "Banks stimulated customer demand by saying, ‘Buy land, we will lend you money, you can only make money through real estate.'"
"Everyone knew that excessive liquidity was the problem, but no one could do anything about it," said Yoshikazu Fujiwara, president of Higashi Nihon Construction Guarantee, who worked for the National Land Agency in the early 1990s.
The Finance Ministry's regulations were ineffective, and by the time it decided to limit the amount of real estate-related loans in April 1990, it was too late, he said.
"The real estate bubble was about to burst."
Mr. Watanuki pointed out that contradictory policies among ministries worsened the situation. "When I was the head of the National Land Agency [in the late 1980s], we levied high taxes on capital gains made from short-term investments in real estate.
"But at that time the finance minister lowered interest rates by 0.25 percentage points and released about 6 trillion yen ($54.4 billion) on the market to cope with the high yen value."
Tax regulations were not effective either, according to Toshikazu Suto, an official in charge of land information at the Ministry of Land, Infrastructure and Transportation, who worked for the Construction Ministry in the early 1990s.
"We taxed capital gains based on actual trading prices by as much as 60 percent, but it was not effective," Mr. Suto said. "The government should have worked from the start to block money from flowing into the real estate market," he continued, "and that's what the Korean government should do now."
Mr. Suto also said real estate policies should be coupled with interest rate policies, adding that the Bank of Japan has admitted that it was wrong to lower interest rates at the height of the real estate bubble in 1990.
"The government should be clear about why it has to raise property taxes and how much of an increase is appropriate. Heavy taxes are not always the right answer. Also, the philosophy that the burden should be increased on people who have a lot of land and houses does not help," said Mr. Watanuki.
"Now I don't think that it's the government's place to decide land and housing prices. The government should allow prices to be set by supply and demand," he added.
"The bubble will burst someday for sure, so a soft landing is important. The Korean government must take into account the consequences of its actions when it is formulating policies," said Mr. Fujiwara.

by Kim Hyun-ki < sungha@joongang.co.kr <mailto:sungha@joongang.co.kr>>