Surge In Japan Real Estate Companies Filing For Bankruptcy

Source : The Business Times, September 9, 2008

(TOKYO) The number of Japanese real estate companies filing for bankruptcy protection surged 23.5 per cent in August from a year earlier as banks choke off loans to the industry.

Gloomy scene: The number of Japanese developers filing for bankruptcy protection reached 42 last month, according to credit research firm Tokyo Shoko Research

The number of developers filing for bankruptcy protection reached 42 last month, Tokyo Shoko Research Ltd, a credit research firm, said in a report yesterday.

The total number of bankruptcies rose to the highest for the month of August since 2003, gaining 4.2 per cent from a year earlier.

Liabilities at failed real estate companies more than doubled from July to 438.97 billion yen (S$5.8 billion), although they fell 24.9 per cent from a year earlier because of the bankruptcy a year ago of unlisted Azabu Tatemono KK with 564.8 billion yen of debt.

Accumulated debt by failed real estate companies accounted for half the total liabilities among all Japanese companies that went under in August.

Banks cut lending as growth in Japan's property market slowed and the collapse of the sub-prime market in the United States kept potential buyers from making acquisitions.

Japanese developers are also being squeezed by higher prices for steel and other raw materials used in construction, and by the government's revisions to building-approval regulations last June that delayed projects.

An accumulated total of 113 bankruptcy cases filed as of the end of August is related to stricter building codes, Tokyo Shoko Research said.

Loan growth at Japanese banks stalled for a second straight month in August, the Bank of Japan said yesterday, as the economy moved closer to recession.

Bankruptcies among real estate companies forced banks to cut earnings forecasts because of non-recoverable loans.

Urban Corp, Japan's seventh-largest developer by market value in 2006, on Aug 13 filed for bankruptcy protection with US$2.4 billion in debt, the biggest bankruptcy of a publicly traded company in Japan in six years, according to Bloomberg data.

Total employees affected by bankruptcies in August rose 42.9 per cent to 13,704, the highest this year.

Forty-two per cent of those affected were from the construction and real estate industries, Tokyo Shoko Research said.

The list of Japanese real estate companies filing for bankruptcy will grow this year, Takeo Higuchi, chairman of Daiwa House Industry Co, Japan's second-biggest home builder by market value, said on Aug 27.

Financial Services Minister Toshimitsu Motegi said on Sept 2 that Japan's government would urge the nation's so-called mega- banks and regional banks to lend more to small and mid-sized companies after July bankruptcy data rose to a record high.

The number of bankruptcies among real estate companies is likely to increase, regardless of what regulators say, said Junko Miyakawa, a credit analyst at Shinsei Securities Co.

'Default rates will probably continue to rise,' Mr Miyakawa said.

'No matter what the Financial Services Minister says, financial institution probably won't increase their loan exposure to small- and medium-sized companies.' - Bloomberg