More property failures, price falls seen for Japan
HONG KONG, Nov 6 (Reuters) - More bankruptcies, a deluge of distressed assets and a price slide are in store for Japan's ailing property industry, as banks recoil from the cheap loans that had fuelled a boom.
That was the grim assessment by investors at a conference session in Hong Kong this week, whose title drawn up a few months ago -- "Japan: a safe haven from the credit crunch?" -- betrayed the speed of the market's deterioration.
More than 3,000 builders and 425 property firms have failed this year with a combined debt of $25 billion, according to Tokyo Shoko Research. Notable recent victims, include developer Urban Corp and apartment builder C's Create Co.
And more pain lies ahead.
"A big negative spiral is coming," said Fred Uruma, chief executive of Touchstone Capital Securities, which specialises in property finance.
Total lending for property would probably fall to $8 billion this year from roughly $50 billion last year, Urama said, putting small and mid-sized developers and contractors in peril.
Banks, nudged by regulators in late 2007 to cut exposure to the industry, are mostly lending only to big firms, and cutting loan levels to 55-60 percent of a property's value, from as much as 80-90 percent a couple of years ago.
Among the major casualties are asset managers, who grew up with the seven-year-old market in real estate investment trusts (REIT), securities that are supposed to be stable because they pay most of their rent to investors as dividends.
Firms such as Kennedix, K.K. DaVinci Advisors (4314.OJ), Pacific Management 8902.T and Creed 8888.T typically built or bought office blocks from developers, filled them with tenants and sold them on to REITs, which they often managed.
But as debt dried up, the whole model fell apart.
"LOUSY" ASSETS
Fund manager Re-Plus Inc, which sponsored Re-Plus Residential Investment (8986.T), set the trend by filing for bankruptcy protection in September.
Since then, Japan has seen its first REIT failure -- apartment landlord New City Residence Investment Corp 8965.T.
More REITs, property firms and fund managers are likely to hit the wall, which will spark a sale of assets and a further fall in prices of second- and third-grade buildings, said Satoru Yamashita, vice president of investment at Mitsui Fudosan Investment Advisors.
Because of a fall in values, top-notch Tokyo offices have seen their rental yields rise to around 4 percent, from 2.5 percent a couple of years ago, while yields on lower-grade buildings have widened to 5.5-6.0 percent from 4 percent. Continued...
