Property bankruptcies to rise in 2012

Tokyo: 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 US and Europe deteriorates, Tokyo Shoko Research 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 US 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, a condominium developer with 25 billion yen (Dh1.1 billion) of debt, filed for bankruptcy protection on September 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 on Monday 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 per cent at the close in Tokyo, the biggest decline since September 26. The broader Topix index retreated 1.4 per cent.

Bigger market share

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

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. 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 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.