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Rescue package of 800 billion yen for ravaged Japanese property market

The state run Development Bank of Japan will put 100 billion yen into a fund to finance purchases by real estate investment trusts. A further 50 billion yen will be provided to support property acquisitions by developers.

Some 350 billion yen will be used to back residential mortgages and another 300 billion yen for city development projects.

The government has decided to take action as overseas investors have withdrawn from the Japanese property market, according to Isamu Ueda, a New Komeito lawmaker and member of the coalition government's project team.

'The J-REIT market is hardly functioning. We need to stimulate this because it's a key to revitalizing the overall property market,' he explained.

The Development Bank's REIT support fund will be set up along with private money within a few months, Ueda said, because of a strong need to stimulate the property market.

The trend has been worrying. Last year J-REITs lost half of their value. Developer Azel Corporation and REIT management firm Pacific Holdings filed for bankruptcy protection last month, with Pacific Holdings citing 163.6 billion yen in liabilities. Moody's Investors Service downgraded its ratings on 13 J-REITs earlier this month.

However, analysts view government plans to assist the deteriorating property market with some skepticism. Creating a safe investment environment would be more effective than short-term financing, according to Takashi Ishizawa, a Tokyo-based real estate analyst at Mizuho Securities.

'REIT prices dropped because there are so few investors, not because of poor performance. If the government provided a safety net to let domestic financial firms invest safely, the market's reputation would improve,' he said.

The government rescue package will be included in the supplementary budget it will send to parliament on April 27. Money is expected to flow into the market once the legislation is approved, probably around June.

The coalition also plans to authorize a government entity to buy bank held shares in J-REITs rated at a certain minimum level as a temporary measure until 2012 to aid regional banks that face a liquidity crunch.