Bloomberg News

Japan Property Bankruptcies to Rise in 2012, Researcher Says

October 18, 2011

(Updates with Topix Real Estate Index in fifth paragraph.)

Oct. 18 (Bloomberg) -- More Japanese property companies may file for bankruptcy in 2012 as banks become more selective to improve their balance sheets as the outlook in the U.S. and Europe deteriorates, Tokyo Shoko Research Ltd. said.

About 500 real estate companies may go under next year, up from about 450 this year, according to estimates by Nobuo Tomoda, executive director at Tokyo Shoko. A total of 441 went bankrupt in 2010, the data showed. The Topix Real Estate Index fell the most in more than three weeks.

Japanese banks may seek to improve their balance sheets by cutting back on riskier loans amid concern that the outlook for the U.S. economy will worsen and the European debt crisis may drag on, prompting them to limit the number of property companies they lend to, Tomoda said. Suncity Co., a condominium developer with 25 billion yen ($325 million) of debt, filed for bankruptcy protection on Sept. 26 after it failed to get extensions on loans, according to a statement.

“We have entered a period with the highest probability of bankruptcies,” Tomoda said yesterday in an interview in Tokyo. “We are likely to see some real estate companies go bust all together.”

The Topix Real Estate Index fell 2.2 percent at the close in Tokyo, the biggest decline since Sept. 26. The broader Topix index retreated 1.4 percent.

Bigger Market Share

Japan’s top seven developers have a 51 percent share of the apartment market in Tokyo as of 2010, an increase from 30 percent three years earlier, according to a report by Masahiro Mochizuki, an analyst at Credit Suisse Group AG.

The nation’s real estate market picked up in 2007 when investment into property funds nearly doubled to 11 trillion yen, according to STB Research Institute Co. That prompted developers to buy more land, and companies including Suncity were left with more debt than they could repay after the collapse of Lehman Brothers Holdings Inc. in 2008.

“Financing is much more crucial for real estate companies in comparison with other sectors,” Tomoda said. “Without funding, real estate can’t be brought. And without properties, there’s nothing to sell.”

The smaller real estate companies may be hurt by banks’ decisions to cut back on loans, prompting a higher number of bankruptcies even as the total debt of companies that go under may drop this year and next, he said.

Almost one in three of the 159 publicly traded property companies in Japan have debt that’s more than twice their equity, a level that needs to be monitored closely for bankruptcies next year, Tomoda said.

--Editors: Linus Chua, Nathaniel Espino

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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