Aug. 8 (Bloomberg) -- Japan's bankruptcies climbed to the highest level in five years in July, foreshadowing what one research group predicts could be the worst year since Japan's banking crisis as more property companies go bust.

Nationwide corporate bankruptcies rose to 1,372 cases in July, the highest since July 2003, credit research firm Tokyo Shoko Research Ltd. said today.

Real estate and construction companies have been at the forefront of a recent wave of failures, and that trend is set to accelerate, said Nobuo Tomoda, an analyst at Tokyo Shoko.

``Bankruptcies are very clearly on a rising trend,'' Tomoda said. ``Collapses will be concentrated in mid- and small-size property and construction companies as banks are cutting off funds to businesses with poor management.''

In the first half of 2008, six listed companies filed for debt protection, while another five have joined that list since the start of July. The number could approach the record 29 set in 2002 when the nation's banks were forced to clean up their balance sheets amid spiraling levels of bad loans, Shoko predicts.

Condominium prices in the Tokyo area are down 7 percent this year, according to an Aug. 1 report from the Nikkei newspaper. Meanwhile the contract rate for Tokyo apartments, which measures whether buyers are lined up before a property is ready for sale, has exceeded 70 percent in only month so far this year, according the Real Estate Economic Research Institute Co. The rate must be over 70 percent for developers to turn a profit, according to the institute.

Shareholder Risks

Zephyr Co., a Tokyo-based condominium builder, declared itself insolvent on July 18, leading to a 98 percent decline in the company's shares. Construction company Tada Corp. declared bankruptcy on July 31.

Japanese bankruptcies pose particular risks for shareholders as creditor banks generally end up with all of an insolvent firm's assets, leaving equity stakeholders with nothing, Tomoda said.

Shares of developers including Urban Corp. have been in a free-fall as investors shunned the stocks on funding concerns. Urban has lost 96 percent since its peak in December 2005. Haseko Corp. has fallen 77 percent from its 2007 high.

``I'm bullish on quite a few small-cap shares, but I am staying away from real estate developers,'' said Koji Nakatsuka, a Tokyo-based fund manager at RCM Capital Management LLC, which manages $18.7 billion globally. ``They're too dangerous.''

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

Last Updated: August 8, 2008 05:17 EDT