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The "bubble" economy that had started in Japan in 1985 finally burst in 1991. The Japanese economy had steadily developed since the end of World War II, and in 1980 was one of the strongest in the world. During this time land prices increased rapidly. Due to the small land area, most Japanese people believed that land prices would continue to increase. Finally, land prices became so high that nobody could afford to buy real property. Declining land prices brought about confusion in the banking system and the real estate market. Sound appraisal practices are needed to help stabilize the Japanese economy.
Japan and other Asian countries are currently experiencing an economic depression. A major cause of the Asian economic crisis was the recent collapse of the Japanese "bubble" economy in 1991 and the ensuing depression. Before the collapse of the bubble economy, Japan had imported many products and resources from other Asian countries, and had invested in Asian plants, factories, and real estate.
Japanese banks have experienced a management crisis that originated in bad real estate loans to real estate and general contract companies. Overly aggressive loans became critical problems for Japanese banks. Banks currently cannot supply enough money to maintain acceptable economic activity in Japan. Companies and individuals who had invested in real estate could not repay their mortgage loans, and many went bankrupt. Banks tried to sell foreclosed real properties, but real estate prices had already dropped. No one wanted to purchase foreclosed properties at above-market prices. Generally, banks could not collect the loan deficiency after the sale of the collateral. Japanese banks were in deep financial trouble.
The bubble economy in the late 1980s in Japan was largely caused by the inability of Japanese appraisers and investors to properly estimate real estate value. In addition, investors engaged in foolish land speculation without sound appraisal practice. If Japanese valuers and investors knew the proper appraisal theory and could evaluate real property value rationally, the current economic crisis in Japan would not be as bad as it is.
JAPANESE BELIEF THAT LAND PRICES WOULD INCREASE IN JAPAN FOREVER
Japanese investors, valuers, and appraisers believed land prices in Japan would continue increasing forever. The Japanese economy had been developing steadily since 1955until the...