Did investors regard real estate as 'safe' during the 'Japanese Bubble' in the 1980s?

It is well known that Japanese banks increased their exposure to land assets and the real estate sector in the latter half of the 1980s, and that this became a primary factor in the non-performing loan problem that emerged in the 1990s. What is less clear is whether this increased exposure was the result of active risk taking, and whether banks and other market participants regarded land and real estate assets as "risky" during the period of land price appreciation. To address this issue, we rely on the real estate data contained in corporate balance sheets to extract an estimate of the market sentiment toward land assets during the 1985-89 period. We find that the systematic risk of manufacturing companies increased with their real estate holdings but not with holdings of other balance sheet assets. This result indicates that market participants regarded real estate assets as riskier than the main operations of manufacturing companies during the "bubble period", even if they may not have foreseen the subsequent crash in real estate prices.