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Japan’s biggest developer to sell property at a loss

The Daiwa House Industry Company has cut prices for some apartments by up to 20%. 'We have to sell at a loss in some cases. If we don't generate cash flow we won't be able to make new investments,' said chief financial officer Tetsuji Ogawa.

Home sales account for about half of Daiwa House's earnings and the Osaka based developer is also reducing its land purchases by about two thirds. Its profit forecast has also been cut.

The number of unsold condominiums in Tokyo has been higher than 10,000 for a record 12 months as the prospect of the first recession since 2001 caused demand for homes to drop.

'The housing market has become increasingly severe. We have seen orders cancelled as original buyers lost their jobs due to restructuring. The gloomy market conditions will probably worsen next year and won't recover until 2010,' Ogawa added.

Daiwa House plans to generate returns on its other investments by creating two private funds, worth as much as 60 billion yen in total, by as early as March to hold warehouses and distribution centres,' he revealed.

It has cancelled a plan to raise as much as 60.9 billion yen through the listing of a real estate investment trust because of conditions.

'Since we can't raise money through an initial public offering of a REIT, the properties we have built are just sitting there. We will need something to fill in the gap between now until the REIT market recovers which will probably take three to five years, Ogawa added.

Japanese REIT listings dried up at the end of last year as the global credit squeeze undermined confidence in trusts that rely on borrowings to fund property investments. The Tokyo Stock Exchange REIT Index of 40 trusts has dropped by half this year.