Property fire sales in 3 countries seen

SYDNEY/TOKYO: Emergency property sales are in store in Japan, Australia and India as banks refuse to roll over debt, forcing landlords to raise funds or go out of business.

Although banks in the Asia-Pacific region are not hobbled by the toxic assets that have paralysed their Western counterparts, they are cutting exposure to falling property markets.

Big firms with healthy reputations and balance sheets will likely get the benefit of the doubt, but their small rivals will suffer. And big discounts on "distressed" sales will drag down prices for land and commercial buildings across whole markets.

In Australia, large real estate investment trusts (REITs) raised A$5.5 billion (A$1 = RM2.37) of equity in 2008 to cut debt, including Mirvac and ING Office Fund.

But the sector needs another A$20 billion-A$30 billion of debt refinancing or other funding in two years.

JPMorgan estimates the 22 most highly leveraged Australian REITs have some US$32 billion (US$1 = RM3.61) worth of debt, which accounts for 94 per cent of their enterprise value. They include Macquarie CountryWide and Tishman Speyer Office Those who fail to lure new investors will need to sell some, or even all, of their buildings.

"I think 2009 is going to be the year of trusts going private and assets being sold," said Jonathan Kriska, analyst at Paterson Securities.

Things are even tougher in Japan, where 16 listed property firms including Urban Corp failed last year because of trouble raising operating funds, despite having profitable businesses.

The Japanese government announced last month emergency measures to rescue cash-strapped property firms. But since then, Creed Corp filed for court protection from creditors and the economic outlook has grown even more gloomy, raising the prospect of more victims of the credit crisis.

"As Creed's failure shows, I think banks still want to rein in lending despite requests to be more flexible," said Goldman Sachs analyst Atsuko Chiyoda.

"It's almost impossible for small and mid-sized REITs to get refinancing with the same kind of agreements they inked before."

In 2009 some 1.1 trillion yen (100 yen = RM4.06), or about 30 per cent of total debt held by 41 Japanese REITs, will be due for refinancing.

Analysts have said the biggest property firms, Mitsui Fudosan Co and Mitsubishi Estate, may emerge as buyers when the market is glutted with sellers.

The companies bolstered their balance sheets following the asset bubble in the early 1990s and are now cashed up and own prime assets to generate healthy cash flows.

"Property firms with bigger exposure to the leasing market are in a relatively stable condition," said a brokerage analyst, who asked not to be identified because he was not authorised to speak to media.

"But most of the small- and mid-sized developers expanded via securitisation, and that's why they're suffering."

In India, shares of the country's biggest developers DLF, Unitech and Indiabulls Real Estate have tumbled by 75-90 per cent in the last year because of a slump in home sales and a lack of finance.

The Indian government has asked banks to restructure loans for commercial property and to give better terms. But property firms, who survived on a mix of upfront payments by home buyers, loans and public equity sales, could be forced to sell land or stakes in projects to investors - if they can find any.

"They're looking for money, even the big developers," said Sharmila Joshi, vice president at Systematix Shares & Stocks. "If they don't get access to funds, the scenario could get worse."

By Reuters