June - Property Prices near bottom?

Property prices in Japan may be near the bottom because transactions are picking up as loan default rates begin to decline, said Yuji Hashimoto, a director at Standard & Poor’s.

“We’ve started to see some property transactions taking place at about 20 to 40 percent discount,” said Hashimoto, director of the structured finance ratings division at S&P in an interview in Tokyo. “This tells us that the impact of loan default for the property prices is likely to be limited going forward and property prices may have bottomed.”

The percentage of default in loans backing commercial mortgage backed securities rated by the U.S. rating company narrowed to 19 percent in the first quarter, a second straight decline, a report by S&P dated May 7 showed. The default rate shrank from a peak of 63 percent in the third quarter last year.

Investors including Chuo Mitsui Trust & Banking Co. and CLSA Capital Partners have said they will invest in real estate in Japan this year after the nation’s commercial land prices fell to the lowest in at least 36 years. At least 115 billion yen ($1.25 billion) of properties backing CMBS have been sold by special servicers as collateral since the second quarter of 2009, according to Fitch Ratings.

“The best time to invest is before things hit bottom, because if everyone were to agree we are right at bottom, they would all come rushing back in,” said Buddy Ferrie, a general manager of the investment division at property consulting firm Colliers Halifax in a phone interview in Tokyo. “If you have a longer term outlook, now is a very interesting time to be looking.”

Loan Refinancing

Japan’s commercial land prices declined 6.1 percent in 2009 from a drop of 4.7 percent a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report in March. Values are at their lowest since the ministry began collecting comparable data in 1974.

Faced with decline in property prices, building owners are injecting capital to refinance loans or returning properties to lenders as collateral when loans are coming due or being reviewed by banks.

Shinsei Bank Ltd. sold Pacific Century Place, an office building adjacent to the Tokyo station, after K.K. DaVinci Holdings, the owner of the building, failed to repay loans. Secured Capital Japan Co., an investment management company, bought the building for 140 billion yen, 30 percent less than what DaVinci had paid three years earlier.

“Larger loans are more likely to be rescued or receive extension of repayment because many people believe that it is not wise to sell large properties in the current market conditions,” said S&P’s Hashimoto. “As a result, they are less likely to default

http://www.businessweek.com/news/2010-06-03/japan-s-property-set-to-recover-as-prices-near-bottom-s-p-says.html