TOKYO REPORT: Bank Lending to Real Estate Hits Record High in Japan

Tokyo, May 18 (Jiji Press)–Bank lending to Japan’s real estate sector remains at a record high, driven by rising property prices, especially in urban areas, which have prompted not only major banks but also regional lenders to expand their loan portfolios. According to the Bank of Japan, new lending to the sector in 2025 climbed 15.1 pct from the previous year to 17,892.8 billion yen. The annual total is about 70 pct higher than the peak recorded during the bubble economy in 1989, when such lending totaled 10,441.9 billion yen. Amid concerns that a sharp decline in real estate prices could leave banks saddled with bad loans, financial authorities are closely monitoring market developments. Increasing Weight Japan’s real estate market has been buoyed primarily by urban redevelopment due to rising demand for office space, and property prices have been trending upward against a backdrop of soaring labor and material costs. With capital investment in manufacturing and other industries lacking significant growth, banks have been stepping up lending to the real estate sector, where funding demand remains firm. Real estate lending marked the fifth consecutive year of growth. A real estate department official at a major banking group said, “High-quality property can be expected to generate stable rental income, making it easier for us to lend money to the sector, compared with industries that experience fluctuations in performance.” In 2025, the share of lending to the real estate industry in total new loans reached 30.9 pct. In 1989, at the height of the bubble economy period, the figure stood at 18.3 pct, showing that the weight of the real estate industry is higher than in the past. At one second-tier regional bank based in western Japan, a little more than 60 pct of the increase of about 11 billion yen in outstanding loans during the six months from the end of March 2025 was allocated to the real estate and goods rental industries. Market Overheating Currently, interest rates are on an uptrend as the BOJ has gradually raised interest rates. Higher rates put downward pressure on asset prices, raising concerns about their impact on the real estate market. If falling market prices and other factors worsen business conditions for real estate companies, loan repayments could be delayed. In its fiscal 2026 inspections to examine the management conditions of financial institutions holding accounts at the BOJ, the central bank plans to focus on reviewing the screening and management systems for lending to the real estate sector in major metropolitan areas. It is also prepared to check the implementation framework for “early warning management,” which is designed to detect and address deterioration in borrowers’ business conditions at an early stage. In inspections for fiscal 2025, which ended last March, the BOJ found some cases in which real estate companies sold properties soon after buying them with bank lending. Growth in lending linked to speculative transactions with inadequate risk management could also fuel overheating in the real estate market. Risk Management Some regional banks have started “cross-border” business expansion, increasing loans to real estate deals in major metropolitan areas such as Tokyo, rather than remaining within their conventional business areas. But lax loan screenings have been unearthed, including cases in which lending limits have not been set. At a meeting with regional bank representatives in February, an official at the Financial Services Agency urged them to “strive to enhance risk management frameworks in light of respective banks’ scales and characteristics.” At a news conference in March, Tatsuya Kataoka, chairman of the Regional Banks Association of Japan and president of Bank of Yokohama, said real estate prices are showing “very strong signs of overheating, especially in urban areas.” He added that it is difficult to conclude clearly whether this is a bubble, and emphasized that “it is important for each bank to manage firmly how much risk it can take.” END [Copyright The Jiji Press, Ltd.]