Tokyo Building Flaws May Open Pandora's Box for Asahi Kasei

  • REITs pushing for answers on building sagging sideways
  • Asahi Kasei discloses sites where unit has undertaken work

Japanese real estate investment trusts are joining apartment owners and regulators in pushing Asahi Kasei Corp. for answers on an apartment building sagging sideways on the outskirts of Tokyo, as concerns are mounting that it may not be an isolated case.

REITs including Advance Residence Investment, Nippon Accommodation Fund Inc., Daiwa House Residential Investment Corp. and Japan Rental Housing Investment Inc. have all asked Asahi Kasei for details on what other buildings might be flawed, according to the trusts. Asahi Kasei disclosed on Thursday the names of prefectures where the company has undertaken work in the past 10 years on more than 3,000 buildings, after the land ministry requested the data. The sites include 342 schools, 257 medical and health-care facilities, 696 housing complexes and 217 office buildings, the firm said.

Asahi Kasei, the subcontractor of the project, said a unit didn’t properly install foundation piles at an apartment building in Yokohama, and the division falsified data on the work. The scandal has sent Asahi Kasei’s shares down more than 21 percent since Oct. 13, when news of the flawed building first emerged. Shares of Sumitomo Mitsui Construction Co., the contractor, plunged 25 percent and those of Mitsui Fudosan Co., which sold units at the Yokohama project in 2006, have tumbled 5 percent since then. All three companies said that the impact of the incident on their earnings is not yet clear.

‘Pandora’s Box’

“It’s like a Pandora’s box, which will take time and money,” said Hideyuki Shinkai, a fund manager at Norinchukin Trust & Banking Co. in Tokyo who invests in REITs. “REIT investors are very concerned about this, but it is hard to make a decision to buy or sell at this point without enough information.”

REITs derive their income from properties they hold, and are concerned that apartments that they own through their trusts might be flawed.

Mitsui Fudosan and Sumitomo Mitsui Construction have been talking to about 700 families that are residents since earlier this month when it was detected that the building had tilted, with a stairway handrail that came away from its original location.

‘It’s Scary’

“It’s scary that you buy an apartment based on a strong brand name and end up with something like that,” said Satoshi Kondo, 53-year-old Yokohama resident who lives about 25 minutes drive from the building. “I have always thought my apartment is safe, but I am not so sure anymore.”

Some of the foundation piles may not reach the supporting layer, and data was altered to show that they did, according to a statement from Asahi Kasei this week. The data on cement fluid that was used to secure the tip of piles was also changed, the firm said. Asahi Kasei said at a press conference on Tuesday that it can’t be sure there are no flaws in other buildings and it will start internal and external investigations. On Thursday, Asahi Kasei said 356 of the sites that the unit worked on are in Tokyo.

Investor Inquiries

“We have been getting more inquires from institutional investors and analysts about this incident,” said Rin Asaoka, a spokesman at Advance Residence Investment, Japan’s biggest residential REIT with 250 properties. “We couldn’t say much because we are still waiting for Asahi Kasei to get back to us. It seems like people are watching this carefully.”

Kawasaki city in Kanagawa prefecture said it has started its own investigation on 92 public facilities that were built since 2011. It has discovered that foundation installations in six properties of the half they have checked so far, including city halls and schools, were handled by Asahi Kasei unit Asahi Kasei Construction Materials Corp. 

Cases of faulty construction have been coming to light recently after a surge in building activity since the March 2011 earthquake and tsunami led to a shortage of labor. Earlier this year, shares Toyo Tire & Rubber Co. fell after the company said some rubber bearings it had produced failed to meet earthquake standards in 55 buildings including hospitals, apartments, and police and fire stations. 

In March 2014, Mitsubishi Estate Co., the biggest developer by market value, said one of its residential complexes in central Tokyo, built by Kajima Corp., will be rebuilt after construction flaws were found. In the same month, Sekisui House Ltd., Japan’s second-largest homebuilder, said it found defects in a building constructed by Taisei Corp.

Yoji Otani, an analyst at Deutsche Bank AG, said he doesn’t expect to see a big impact from the latest case because of demand for units.

“People forget easily,” Tokyo-based Otani said. “Some people got very concerned about the apartments in the Tokyo Bay area after the March 2011 earthquake caused liquefaction, but apartments there have been selling very well these days.”

The magnitude-9 temblor triggered liquefaction, a phenomenon where soil loses its strength after violent shaking, in the Tokyo Bay area even as most of Tokyo avoided major damage.

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