Without any publicity in Australia, the Japanese home building and construction sector has been hit by the collapse of at least four significant companies in the past three weeks.
Two companies, Sebon and Sohken Homes both went into bankruptcy protection this week after Urban Corp failed last week .Another developer, Zephyr failed earlier this month.
The collapses have surprised analysts and mean that the country’s home building sector is resembling the black holes that we are seeing in the US, Spain, Denmark, Ireland, New Zealand and even Australia.
The collapses in the US, UK, Spanish, Irish and Danish housing sectors have helped push the respective economies either into recession or close to it.
UK house price are now falling at double digit rates. Surveys by Nationwide and Halifax lending groups suggest prices fell by between 10.6% and 11% in the year to July, the biggest fall in decades. The UK economy has stalled, Europe has slumped.
It’s not going to do that same in Japan because exporting and manufacturing are far more important (and healthier) sectors of the economy, but the failures are indicative of the pressures that saw the Japanese economy contract in the June quarter.
Housing prices are falling in all these countries and Japan is no exception.
It’s crunch has been caused by a combination of sluggish demand, problems in the approval of homes (there was a scandal involving the wrongful certification of many homes as earthquake proof and the national Government changed the rules, which produced a backlog in unfilled contracts which shrank and then it emerged real demand had melted away).
However, Japanese construction costs are rising rapidly, thanks to the inflation of steel and cement prices, not to mention wood. Japanese real estate prices are static to easing. That 7.1% rise in producer prices in the year to July is hurting many companies in the sector.
Japanese banks are also taking a tougher line on lending (aren’t they all around the world) and the slowdown in the economy generally, plus rising inflation and costs, have made buyers more cautious. Little real wage growth is forcing more potential buyers from the market.
An 18.7% drop in new lending in the June quarter and weakening housing demand are hurting the real estate industry.
The number of apartments up for sale in the Tokyo region dropped for an 11th month in July, the longest stretch of declines since 1991.
Official figures show that construction and real estate companies accounted for almost a third of all bankruptcies in Japan in July as banks cut lending and the country’s economy shrank to the brink of its first recession in six years.
Japan had 1,131 bankruptcies in July, the highest since April 2005. Construction companies that filed for bankruptcy rose 20% to 324 cases from July 2007. Real estate companies filing for bankruptcy protection surged 79% to 43 cases.
Developer Urban Corp’s failure was the largest for a listed Japanese company (of any sort) in six years.
Bloomberg and Reuters reported that it had debts of $US2.4 billion when it failed.
Sebon and Sohken were smaller failures.
Zephyr Co had a reported $US890 million of debt, and at least two other companies are in trouble because of loans made to Zephyr that are now doubtful.
The trouble is expected to continue into second half of the Japanese 2008 financial year (which ends next March), with apartment sales in the biggest market, Tokyo, expected to fall 16.3% in the second half, compared to the same period in 2007. Before July’s fall, June’s figures showed a 30% drop in numbers to around 4,000 units.
