Household debt vs. Household saving

• For households, there is no way to pay off debts if home prices do not rise further.

• The government increases its own debt to buy up the sour loans or to bail out financial

up the sour loans or to bail out financial institutions.

• It is acknowledged that household credit growth does not have much effect on long-term income but can generate vulnerabilities that can

precipitate a banking crisis while enterprise credit expansions may have the same effect

tempered by the associated increase in income.

Implications

• Policy need to be made more efficient as household debt increase despite economic and housing market slump.

• It involves a classification of household

• It involves a classification of household

debt growth factors as cyclical or structural.

• If households take out loans backed by the price of their homes due to income

uncertainty, consideration should be given

to how to stabilize the labor market and to

improve income conditions.

Implications

Thank you!

Private Developer and Construction Firm and Their Competitive Strategies in Japan and Korea

Ahn Sang Kyung

Toyo University, Japan

Introduction

Who promotes the development and how different actors involved in the development process

 affect the structure of the property market and the industry

 influence their competitive strategies and urban configuration

Policy measures have greatly comparable and lot of similarities in the two countries

 but the intervention in land supply has unusually different features

 A great part of land development in Japan undertaken by private

sector, while in Korea still mainly dominated by the public sector

Introduction

Since the bubble economy collapsed in 1991, the nature of land and housing problems in Japan has changed

Approaches to spatial planning and land management in Korea begin to take different forms from that of Japan

Objectives

Objectives

 Why and how is the housing land supply system in Korea and Japan so different?

 What does such different mechanism by which housing production is regulated affect the competitive strategies among the actors and imply for housebuilding industry and urban development?

 These interrelated questions consist of major domain of this

presentation

Land Price Increase in 6 Large Cities

300.0 400.0 500.0 600.0

Japan Korea

1974=100

Source: Index of Urban Land Prices by the Japan Real Estate Institute (1965~2011) Change Rate of Land Prices by Korea Appraisal Board, (1975~2011)

0.0 100.0 200.0

65 70 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 01 02 03 04 05 06 07 08 09 10 11

International Differences in Housing Prices(1990-2009)

Name of

Cities Single-detached Housing Area Apartment Area

Year 1990 1996 2003 2009 1990 1996 2003 2009

Tokyo ^{100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0} Osaka 44.8 72.9 54.1 48.1 65.0 92.0 102.9 80.6

Seoul 12.8 25.3 13.6 30.9 13.7 35.5 42.9 113.7

Seoul 12.8 25.3 13.6 30.9 13.7 35.5 42.9 113.7

New York ^{1.2 15.8 34.2 46.7 - 81.2 289.8 419.9} Vancouver ^{6.0 31.8 39.3 65.0 - 30.8 45.2 87.8} London ^{3.0 29.9 124.3 150.7 14.8 54.0 258.1 287.3} Paris ^{4.3 17.7 54.0 80.6 134.1 95.5 179.9 283.9}

Taipei ^{- - 13.9 22.7 104.6 149.7 83.7 123.6}

• Normalized, Tokyo=100

• Figures in 1990 are land prices

• Source: Japan Real Estate Appraisal Association, A survey Result of International

Comparison of Housing Prices

Distinctiveness of Private Developer and Contractor

Private Developer Contract Builder

Who initiates the production process?

- Developer ^- Building Owner/Client

Profit

- Dependent upon development profit ^- Developing cost below the revenue received from the client

Competition Between Firms

Competition Between Firms

- Take place at stage of land purchase and house sale

- Take place at the tendering stage

Crucial Factors of Making Profit

- Careful land acquisition, appropriate residential scheme for the site

- Rapid turnover of capital, profit maximizing portfolio of contracts

Emphasis in Management

- Marketability of houses or land, land banking, development timing

- On acquiring a good mix of contracts, on being able to evaluate highly

uncertain building costs, on being able

to assess a client’s willingness to pay

Typical Forms of Housing Production and Developer in Japan

1) Land and Finance Developer Owner Occupier

Landlord Developer =Landlord

or

Tenant

Tenant Contractor or Builder

2)

Laborer

Land and Finance Developer Builder

Owner Occupier

Landlord Tenant

Laborer

Typical Forms of Housing Production and Developer in Japan

In the form 1, the developer initiate the process and contract with the builder

 The housing produced by them is sold or rented directly

 Land for the housing is either directly developed by them or purchased from other developer or land subdivider

Housing type – single detached house or town house and high rise

 Housing type – single detached house or town house and high rise apartment

 Most leading developers in Japan take this form.

In the form 2, the developer corresponds with builder

 They control not just means of production but the product of labor

 A mass market is a condition for this form

 The developer include house makers or ranging from medium-sized

construction firms to large firms

Condominium Sale by Major Developers

Characteristics of Leading Developers in Japan

Almost half of the total national condominium in 2010 were supplied by 15 major developers, not construction firms

History of private developer - traced back 100 years or more when intra-city railway system was opened

Classified into 5 types in terms of origin of the business

Classified into 5 types in terms of origin of the business and dominant component of capital

 private railway affiliated, zaibatsu’s capital, financial capital, construction firms affiliated, and pure property developer

 Specialized and concentrated their activities in specific sectors:

for sale or rent, condominium or single-detached, infill or

large-scale development etc.

Typical Forms of Housing Production in Korea

Serviced Land and Finance

Developer

Builder Owner Occupier

Landlord Tenant Laborer

Raw land and Finance Public developer

The developer being builder purchases serviced land from the public developer (except for renewal projects)

 Housing types – mainly high-rise apartments

 included most of construction firms

 Speculation with land and housing is a very important activity

 Attempt to maximize their development profit by maximizing the

difference between land prices and housing prices

Typical Forms of Housing Production in Korea

The speculative construction relying on the property market is highly vulnerable to the market fluctuation

As the role of private sector in development project since 2000 enlarged, activities of the private developer emerged

 But their activities are relatively minimal, not very much organized

 But their activities are relatively minimal, not very much organized

 The role of developers still seems closer to broker, dealer, and financier rather than producer or organizer of the development process

 The construction firms decrease the activity of speculative

construction to reduce the risk and uncertainty in development

 A research shows that the larger the firm, the less is the weight on

development projects

Regulation on Land and Housing Development in Korea and Japan

Land development by the private sector was subject to full rigor of planning system in Korea

 Public bodies have handled more than 90 % of the total residential land amount supplied until 1990s

Land readjustment project was main tool for private sector

 Land readjustment project was main tool for private sector development except for small development

 Despite wide allowance of private sectors, the projects have been led by local government

 The reasons arise from the lack of technical expertise, scandal

surrounding financial matter and intention to increase the financial

source in local government

Regulation on Land and Housing Development in Korea and Japan

With the enactment of Residential Land Development Promotion Law, the role of public bodies further

stregnthened

 Reason for shift from land adjustment project

 Criticism on the project - excessive rise in land prices and

 Criticism on the project - excessive rise in land prices and

speculation in and around the project area. Because of no control over building activities after project, it takes long time to complete built-up. Technically limited to supply the housing lots for

low-income people

 new method could maximize the amount of land with the limited investment capital. Reap huge windfall gains

Since 2000, development projects by private sectors has

been widely allowed

Regulation on Land and Housing Development in Korea and Japan

In Japan, the private developer has occupied an important role

 80% of the total land supply in 2009 was undertaken by the private sector

Land readjustment has been used as a key tool, still increased

 Land readjustment has been used as a key tool, still increased steadily

 Development permit system is passive and regulate measure which guide and control the development

Most of land development by private sector is made by the

development permit system and land readjustment project

Residential Land Supply by Sector in Japan

The underlined figures denote the percentage of land

supplied by private sector

Strategies of Construction Firms during Bubble Economy in Japan

Diversification of business lines and strengthening the development projects (speculative construction)

 Japanese construction industry is traditionally dominated by a set of firms of major contractor

 But, with rapidly rising land prices and development boom,

 But, with rapidly rising land prices and development boom,

construction firms began to buy properties and invest in all kinds of development projects

 Enlarged the business to sports, leisure, media, entertainment, financial sector

 After the bubble economy burst, there were definite differences in

management between firms that actively participated the development

projects and the firms that maintained the traditional function

Strategies of Construction Firms during Bubble Economy in Japan

Advance into overseas property market

 Purchased real estate abroad and invested resort or residential development without any knowledge on foreign investment in real estate

 A lot of expensive properties bought and development by the

 A lot of expensive properties bought and development by the firms was sold at a big loss

Return into major contractors as a traditional business

 tendency to concentrate on specialized fields and operation,

clear division of business with private developer

Competitive Strategies in Korea and Implications

The rapid increase in land and housing prices stimulated for construction firms to shift from contracting operation to speculative construction

Because land development activities by the private sector have been extremely limited, construction firms have

have been extremely limited, construction firms have absorbed the functions of the private developer

The industry is heavily dependent on speculative housing construction

 the industry is highly vulnerable to the land and housing price

fluctuation; increasing during booms and decreasing during

slumps

Competitive Strategies in Korea and Implications

 For them, access to land and thee ability to build up land banks is much more important strategy than reducing production costs

 They are increasingly reluctant to spend on training of employees, on research and development

 Experiences in Japanese firms during bubble economy and after

 Experiences in Japanese firms during bubble economy and after bubble burst have important implications for corporate

strategies of Korean firms

 Specialization and concentration

 Flexibility and diversification in development projects

문서에서 The 21th Korea-Japan Joint Workshop on the Construction Economy (페이지 83-107)