Japanese Real Estate Hit by Credit Squeeze

By: Darrel Whitten Tuesday, August 12, 2008 10:17 AM

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Credit availability in Japan's property market has essentially dried up, and the squeeze is particularly severe for the JPY9.8 trillion highly leveraged private placement real estate funds, which had been the most dependent on non-recourse and other financing for foreign banks. These funds are now having trouble rolling over loans and are facing severe cash squeezes, which is leading to an increase in bankruptcies-real estate comapnies Reicof and Zephyr as well as construction company Tada Corp. being recent examples. Those still standing have seen their stock prices plumment. Shares of developers including Urban Corp have been in a free-fall. Urban has lost 96% since its peak in December 2005. Condo developer Haseko has fallen 77% from its 2007 high.

Japan’s bankruptcies climbed to the highest level in five years in July, foreshadowing what one research group predicts could be the worst year since Japan’s banking crisis as more property companies go bust. Nationwide corporate bankruptcies rose to 1,372 cases in July, the highest since July 2003, according to Tokyo Shoko Research . Real estate and construction companies are leading the recent wave of failures, and that trend is could accelerate. In the first half of 2008, six listed companies filed for debt protection, while another five have joined that list since the start of July. The number could approach the record 29 set in 2002 when the nation’s banks were forced to clean up their balance sheets amid spiraling levels of bad loans, Shoko predicts.

Japan's fledgling CMBS (commercial mortgage-backed securities market), which saw issuances of JPY1.0 trillion in Q4 2007, has shrunk to 1/10th this level. Investment banks, who accounted for about 90% of these securities, have curtailed loans to the real estate sector.

While some point out that Japan does not have the problems currently afflicting the US, i.e., an imploding housing market, condominium prices in the Tokyo area are down 7% this year, Meanwhile the contract rate for Tokyo apartments has exceeded 70% in only month so far this year, according to the Real Estate Economic Research Institute. The rate must be over 70% for developers to turn a profit.

The other issue unique to Japan is real estate and links to organized crime. When central Tokyo property prices began bottoming in 2003, some developers resorted strong-arm tactics to gain possession of booming properties. Yakuza groups and their cronies are again scouting the capital's real estate market for lucrative opportunities to make fast money through shady business deals. For example, the president of Koyo Jitsugyo (believed to be affiliated with the Yamaguchi-gumi Yakuza group) was arrested along with 11 others were negotiating with a buildings tenants over eviction terms. In Japan, only lawyers are legally able to conduct such negotiations.

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I have read many articles related to the credit crunch hitting the Japanese market and credit availability "drying up" in Japan but there is a sector of the market that is holding its own quite nicely: Niseko. Niseko is yet to get caught in the sticky web of global slowdown. Land near to the ski hill in Hirafu (Kutchan-4) saw the largest price rise in Hokkaido Prefecture at 37.5% last year. So far, enquiries this year are on par with those received here last year (source: Niseko Consulting) and credit has arrived in Niseko from the Australian Commonwealth Bank. In addition, other Australian financial institutes are coming in with competitive yen loans and one of Australian's largest real estate agents, L J Hooker, has recently announced an aggressive new business plan in Hokkaido. Backed by several large scale players here (PCCW, Hilton, Capella, etc.), this market still has a lot of growth potential and shouldn't be overlooked just yet. Michael Davenport Niseko Consulting

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12/30/2008 6:37:16 AM

brace yourselves! by Xavier Mackenzie

guess it would be in your best interests to keep the investment money coming in...but our (Aussie) tourism is in for a painful 2009 year...less foreign tourists to Australia, meaning...more domestic vacationing...equals: fewer people from Australia hitting the slopes in Niseko and instead either catching the surf at home or @ cheaper destinations around asia...2009 will be the most painful...brace yourselves expats!

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you're right about that...this year the family and friends are heading to thailand for some island hopping instead of hokkaido...much cheaper. i guess those hard core powder punks will still be trying to make their way up there though, if they can still afford it.

1/22/2009 3:22:00 PM

ASSET PRICES IN JAPAN = CHEAP by LeahVDG

The Nikkei 225 Index reached an all-time high on Dec 29th, 1989 of 38,957 points before plummeting to 8422 points in May 2003, some 13 years later. On 28th Oct 2008 the Nikkei-225 reached a new 26-year low of 6994.9 points, meaning that the collapse (from the 1989 peak) of the Japanese market has taken 20 years. We can be fairly confident that the Japanese economy, has bottomed, but we cannot ignore the ‘policy paralysis’ that has Japan stagnating for 2 decades. The Japanese government has done very little to reform the economy; instead relying on exports and government spending for stimulus. Now, in the wake of the global collapse, Japanese export markets will dried up.
The positive implication is that the global crisis will force the Japanese government to reform its economy. For this reason there can be few better places to invest than in Japanese property as long as the focus is on the major cities which are experiencing regional population growth.
Since Oct 2008, the Nikkei-225 has recovered to 9,319 points, and its soon to test its previous high around 9,500 points. The yields on Japanese property give similar confidence to the property market, but equities are always a leading indicator.

http://foreclosured.blogspot.com/search/label/Japan

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"The positive implication is that the global crisis will force the Japanese government to reform its economy." that is joke, right? i think you forgeting japanese kamikaze spirit! we do not change for those reason...like america. this west style logic doesn't work here..even if i think it is good.

"We can be fairly confident that the Japanese economy, has bottomed.." yeah right! like anybody can't make a statement like that in these turbulent times...even the people who are supposed to know about this...people in the financial services.. have no idea what's going on in the world economy...so this kind of statement makes me want to avoid your advice...nice way to promote your book, though, mr. expert.

1/29/2009 3:58:31 AM

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1/29/2009 4:04:41 AM

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