Property Market in Japan Japanese Condo Developers Go Broke and Accounting Scandals rife

Two Japanese condominium developers collapsed Q4 2008 due "mainly to funding problems amid a quickly deteriorating business environment for the industry," according to Japan's Corporate News service. It appears to be somewhat more complex.

Dynacity Corp filed for bankruptcy protection with 52 billion yen in debts. The Jasdaq Securities Exchange delisted the company last December.

Dynacity was the 12th publicly traded real estate firm to go bust last year, according to Teikoku Databank, a private credit research agency.

Separately, unlisted Kowa Estate Inc. filed for bankruptcy protection with debts of 14.3 billion yen.

In 2005, Dynacity saw its creditworthiness hurt by a drug scandal involving its president. It then formed an alliance with Livedoor Co., but the relationship quickly collapsed following the arrest of Livedoor executives in early 2006.

Then in October 2008, Dynacity sought rehabilitation under the help of billing service company Invoice Inc. General contractor Kajima Corp said Tuesday it has lost a total of 6,912 million yen due to fictitious deals involving construction material subsidiary Taiko Trading Co which went back for years.

In 1998, a male executive at Taiko started the practice in order to cover the firm's losses from irrecoverable loans related to software development operations, Kajima said, announcing the outcome of an internal probe. Kajima's losses ballooned as the scale of fictitious deals expanded, it said.

The company corrected its earnings statements over the past five years through March last year, revising down profit and sales figures inflated by the fictitious deals.

Kajima punished senior Taiko officials through pay cuts and other measures. Kajima President Mitsuyoshi Nakamura will also endure a 30 pct pay cut for one month. The man at the center of the scandal has already been fired.

Kajima also revised down its consolidated earnings for the current year ending in March 2009, mainly citing falling profitability at its construction operations as well as the negative impact of Taiko's scandal.

At the time net profit was then estimated at 12 billion yen, down from the previously forecast 25 billion yen. The operating profit estimate was lowered to 20 billion yen from 38 billion yen. Meanwhile, the sales projection was raised to 1.96 trillion yen from 1.89 trillion yen on stronger-than-expected receipts of orders for overseas civil engineering projects, which also turned out to be fictitious.