Mitsubishi Estate Co., Japan’s biggest developer by market value, halted sales of residential units in Tokyo after finding defects and will seek compensation from the builder Kajima Corp. The shares in both companies fell.
The building in Tokyo’s upscale neighborhood, Aoyama, was found to require some construction repairs including to some of its pipes, Mitsubishi Estate said in an e-mail statement. The project was constructed by Kajima along with Kandenko Co. and Hamano Densetsu Inc., which make electrical and machinery facilities, according to the statement. The details of the compensation amount will be decided at a later date, said Masayuki Watanabe, a spokesman at Mitsubishi Estate.
Residential demand has increased in Japan ahead of the government’s plan to increase consumption tax to 8 percent from 5 percent in April. Housing starts in the world’s third-largest economy rose for a 16th month in December, the longest rising streak since the period ended February 1994, a government report showed last week.
“This incident seems to be an one-time issue,” said Masahiro Mochizuki, an analyst at Credit Suisse Group AG via telephone. “I don’t expect Mitsubishi Estate’s reputation will be hurt by this incident. However, Kajima and Kandenko will have to share the cost burden and review their quality control.”
Mitsubishi Estate shares dropped 2.9 percent to 2,471 yen at the close of trading in Tokyo. Kajima slid 6.3 percent to 358 yen, the biggest drop since May 27. Kandenko tumbled 6.7 percent to 489 yen.
Mitsubishi Estate began investigating the construction after one of the buyers informed the Tokyo-based developer that there were some postings on the Internet about the defect on Dec. 9, it said in the statement. The developer had decided to halt the sale because it is unclear as to when it can hand over the apartments and that it may find additional defects, it said. The units cost as much as 350 million yen ($3.4 million), with the majority of them around 140 million yen, she said.
A Japanese weekly magazine Diamond reported the halt first on Jan. 30.
Kajima has apologized to Mitsubishi Estate, the builder said in a separate e-mailed statement.
“We sincerely apologize for causing great inconvenience to the potential buyers and Mitsubishi Estate,” Kajima said in a statement. “We will make sure that such a case would never happen again by enforcing management of the construction.”
Takashi Nomoto, a spokesman at Kandenko, declined to comment other than to say the company is deciphering the situation now.
Mitsubishi Estate was originally expected to hand over the units on March 20, it said, adding that they are in discussions with the those who agreed to cancel the sale. Eighty-three out of 86 units were under contract, said Chika Kanamori, a Tokyo-based spokeswoman of the developer.