NRI Papers
No.144 July 1 , 2009
  Condominium Developers in Crisis: Possible Solutions  
Sung Yun KIM and Yasuyuki ARAKI
   Since 2008, the condominium market has been declining rapidly, and many developers have experienced business failure. Most of these developers were not prudent enough to calmly identify the true purchasing power of home purchasers, and carelessly raised the prices of condominium units. On top of this imprudence, they were at a loss as to how to deal with rapid changes in the financial market.
   Most of the failed developers had sharply expanded their liquidation businesses in which they repeated the acquisition and sales of office buildings and other real estate products. They cited "stabilization of business portfolios" as the primary reason for participating in this business. Nevertheless, it is nearly impossible for developers to know how the investment policies of professional institutional investors change. Careless expansion of the liquidation business proved fatal.
   In the Greater Tokyo area, including Tokyo, Kanagawa, Chiba and Saitama, where basic economic conditions are relatively good, the condominium business is still viable (in this paper, the condominium market in Tokyo, Kanagawa, Chiba and Saitama is analyzed). The reasons behind this projection are that households that have not yet purchased homes have been accumulating, and the number of suppliers will decrease considerably.
   Developers must upgrade their condominium business as their core business and, at the same time, must establish a long-term, stable source of profit. As the history of several decades tells, business structures that rely on borrowing fail. Not only developers but also financial institutions that provide loans to developers should learn these lessons from history.
I Basic Reasons for Failure in the Condominium Business
II Traps behind Imprudent Expansion of Business Portfolios
III Attention Should be Paid to Structural Changes in the Market
IV Suggested Solutions for Condominium Developers


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