Disparities growing as Japanese real estate sector recovers - Fitch

Disparities growing as Japanese real estate sector recovers - Fitch
07.11.2005, 12:41 AM AFX News Limited

TOKYO (AFX) - Rising property prices in Japan will widen the gulf between the weaker and stronger property developers and investors, as companies with the strongest balance sheets are able to borrow more money to better exploit the growing opportunities, Fitch Ratings said.
In a new report examining the Japanese property market, Fitch says property prices are improving the earnings prospects for the real estate sector.
And that in turn will prompt companies and investors to borrow more against existing assets to take advantage of the market recovery, in a bid to raise returns through greater leverage, says the report entitled 'Growing Disparities in the Recovering Japanese Real Estate Market.'
'Prices of land and properties at prime locations are already on the rise, which require more capital to support the growing volumes and rising prices of property transactions and new development projects,' wrote Satoru Aoyama, Fitch's head of corporate research in Japan.
'Therefore, a real estate company's...ability to raise capital, including both equity and debt, is increasingly important and likely to be a key factor in determining its growth prospects and credit quality going forward,' Aoyama wrote.
Fitch also noted the pace of recovery has varied by area and type of property.
'This uneven pace of recovery is likely to cause greater polarization in the Japanese real estate sector,' it said.
Fitch said rental yields were already declining because property prices are rising faster than rents. But it said investors were still investing because 'real estate investments continue generating higher returns than corporate bonds and government debt.'

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