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Japanese Lenders Plan to Boost Property Loans on Recovery Bet

Japanese lenders, which suffered a decade of bad debts and loan losses after the property bubble burst in 1990, are looking to provide more loans for real estate investments as they bet prices will recover from a 36-year low.

Aozora Bank Ltd. plans to increase loans to more than a net of 100 billion yen ($1 billion) from 30 billion yen a year earlier, said Fumihiko Hirose, general manager of real estate financing at the bank. Orix Corp. is looking for investors to take over some $2 billion worth of existing loans this year, said Shoji Misawa, managing director of global coverage group.

“Bank lending is the most important indicator for the future of the real estate market,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. “An increase in lending by banks to real estate is very good news for the property market.”

The nation’s lenders are betting on a recovery in the property market after values reached the lowest in at least 36 years. Outstanding loans by Japanese banks rose to 60.4 trillion yen in March, from 58.5 trillion yen a year earlier, according to Bank of Japan data.

Japan’s commercial land prices fell 6.1 percent in 2009, the Ministry of Land, Infrastructure, Transport and Tourism said in a report in March. Values are at their lowest since the ministry began collecting comparable data in 1974.

Property prices in Tokyo are likely to hit bottom by the end of the year, said Tomoyuki Yoshida, Japan president of GE Capital Real Estate.

“Residential prices have reached bottom and prices for office buildings are close to bottom,” he said at the Real Estate Investment World conference in Singapore this week.

Aozora, Orix

Aozora Bank, the Japanese lender controlled by Cerberus Capital Management LP, resumed non-recourse lending in 2009 after taking a break in 2008, said Hirose. Non-recourse loans, which limit claims to a specific asset or assets, account for about 40 percent of Aozora’s total lending to real estate.

“The bank is very positive about the market so we plan to increase our exposures to non-recourse loans by more than 100 billion yen,” said Hirose.

Orix, a Tokyo-based financial services company, has $6 billion in non-recourse loans with an average maturity of 3 years, said Orix’s Misawa. The lender is seeking new investors for its existing transactions, he said.

“We have a lot of liquidity,” he said in an interview at the same conference in Singapore. “We have enough resource to restructure debt which can be profitable for us.”

Japanese banks were saddled with as much as 52.4 trillion yen of non-performing loans as of 2002 after the burst of stock market and real estate bubbles in 1990, according to data from Japan’s Financial Services Agency.

New lending to real estate by Japanese banks fell to 7.14 trillion yen in 2009, the lowest since 1999, according to the Bank of Japan.

Earnings Recovery

Sumitomo Trust & Banking Co., Japan’s fifth-largest bank, expects operating profit from real estate to rise to 19 billion yen for the year ending March 2011, from 10.6 billion yen a year earlier, the bank said on its website.

Operating profit for Chuo Mitsui Trust Holdings Inc.’s real estate business will rise to 18 billion yen for the year ending March 2011, from 9.8 billion yen a year earlier, according to the bank’s forecast as of May 27.

An Asian division of Societe Generale SA, France’s second-largest bank by market value, has already seen competition rising in Japan as it looks to provide loans to investors, said David Gore, managing director and head of real estate & lodging finance at Societe Generale Asia Ltd.

“The financing market in fact is quite competitive today,” said Gore. “We would love to lend more. The main constraint is the number of credit-worthy transactions.”

Societe Generale started to lend in Japan again in 2008 after pulling from the market in 2007, he said at the meeting.

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