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Japanese govt emergency plan to aid failing property firms not sufficient

The list of property companies failing is growing and analysts are warning it can only get worse as the government's emergency measures are not enough and lack detail.

To help small and midsize real estate developers who are finding banks increasingly reluctant to lend, the government announced a $2.8 million emergency package in December but it is still undecided about the total size of support to be channelled to developers and REITs through the Japan Finance Corporation and the Development Bank of Japan.

Meanwhile two more real estate companies filed for bankruptcy last week while developers Properst and Atrium have announced unexpectedly big revisions to their outlooks.

Analysts also said banks remain tight on lending to small and medium-sized firms despite the government's orders for them to be more flexible when examining lending requests.

'From what we had heard from the Ministry of Land, Infrastructure and Transport, we see that the amount of support has not yet been decided,' said Goldman Sachs analyst Atsuko Chiyoda.

'Property companies and funds are set to have an extremely tough time in the coming months with many of them are due to repay loans at the end of March,' he added.

'We need to see something bigger and more drastic. Many property companies are in an extremely difficult situation now as they are having trouble getting refinancing agreements. If this kind of situation continues, then one in every five companies has a chance of collapsing,' said Daisuke Seki, chief executive of REITs at real estate consultancy IB Research & Consulting.

In 2008 16 listed property firms including Urban and Morimoto went under after facing difficulties in raising operating funds, even though many of their businesses were profitable.

Dozens of other property firms are also in trouble as banks rein in lending amid the global credit crunch, while demand for apartments and office space weakens with the Japanese economy in recession for the first time in seven years.

Property developer Properst, which in December announced layoffs of 40 to 50% of its work force, is forecasting an annual loss and has scrapped its dividend plan due to unexpectedly poor sales and the credit crunch.

Atrium also cut its full-year net profit outlook by 98% and said it would skip a dividend payment.