Kumagai Drops Most in 4 Months on Building Defect: Tokyo Mover

Kumagai Gumi Co. (1861), a Japanese construction company, fell the most in four months after saying an apartment complex it had built has defects.

The shares dropped 5.7 percent to 264 yen at the close of trading in Tokyo, the biggest decline since Feb. 4. Construction flaws in supporting pillars were found in the building completed in March 2003 in Yokohama City, south of Tokyo, the company said in a statement through the stock exchange today. The residents have been asked to relocate to temporary shelters and further investigation is required, it said.

“This is a big negative for Kumagai’s reputation and it may hurt the company’s future earnings,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo.

The latest defect comes after Mitsubishi Estate Co. (8802) said in March it will rebuild a residential complex, constructed by Kajima Corp. (1812), in central Tokyo, after defects were found. Mitsui Fudosan Co. (8801) said it would repair some parts of an apartment building in Kawasaki City after the builder Shimizu Corp. (1803) found cracks in the concrete of some columns in April.

Kumagai reported net income of 4.3 billion yen ($42 million) for the year ended March 31, from a loss of 1.1 billion yen a year earlier, the company said on May 13.

Sumitomo Realty

The building was sold by Sumitomo Realty & Development Co. (8830), the developer said in a separate statement. While Sumitomo Realty has never faced such flaws and the construction company is responsible for the defect, it will do its best to serve the customers by taking responsibility, it said in the statement.

Shares of Sumitomo Realty rose 2.1 percent to 4,521 yen.

The ratio of people seeking consultation on building defects has risen to a record in the year ended March 31, according to a report published last week by the Center for Housing Renovation and Dispute Settlement Support.

The percentage of individuals who sought help has risen to 69 percent, the highest since the Tokyo-based center started compiling the data in 2010, it said. That compares with 65 percent last fiscal year and 62 percent in both fiscal 2011 and 2012, according to the group, whose goal is to raise the quality of housing.

A record number of complaints about defects is marring Japan’s biggest residential building boom in five years, amid a shortage of skilled workers.

Demand for homes climbed before the first increase in the sales tax since 1997 on April 1. Housing starts, which rose for five straight years, totaled 980,025 units in 2013, compared with an average 829,613 units over the previous four years, land ministry data show.

A decline in technical workers, coupled with the increased number of projects, has led to the worst shortage of construction workers since 1994, according to the Ministry of Health, Labor and Welfare.

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Tomoko Yamazaki

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