Land of DespairHundreds of Japanese communities are blighted by unkempt plots that no one can develop because creditors and banks refuse to write off their bad loans. But residents in one neighbourhood are fighting back.
By Eriko Amaha in Tokyo
Far East Economic Review
September 24, 1998
B ack in 1988, smartly dressed businessmen started showing up at Toru Sasano's noodle shop in the Tokyo neighbourhood of western Tomihisa. "They looked like bankers and asked me whether I wanted to sell my shop," recalls Sasano. He refused, but they kept coming back. Eventually they offered him ¥825 million (then $6.4 million) for a 109-square-metre plot that Sasano had bought for ¥39.6 million in 1976. "Because my shop is on the corner they really wanted this place," he says.
Sasano wouldn't budge. But many others in similar situations took the money. The men turned out to be representatives of Collins Group, a Japanese real-estate developer. Sasano even heard rumours that they were showing off wads of bills worth ¥500 million to get landowners to sell.
The Collins plan was to tear down all the old dwellings and build three high-rise buildings in western Tomihisa at a cost of ¥270 billion. But when Japan's bubble economy collapsed and land prices plunged, the project fell through. Now, residents in this part of Tomihisa call their neighbourhood mushikui, or moth-eaten, because it's a patchwork of boarded-up houses and weed-filled parking lots. Of the 220 households that once lived here, only 115 remain. An area with so much promise--it's just 1.5 kilometres from the prime business and commercial district of Shinjuku--has turned into a near-wasteland.
Why should this still be so, seven long years after the collapse of the bubble? In many ways, western Tomihisa is a textbook illustration of the reasons for Japan's inability to recover from its problems. Banks and other creditors are immobilized by huge losses that, if fully acknowledged, would push them closer to insolvency. That unwillingness to write off bad loans to Collins has allowed it to live on indefinitely. Yet until creditors are willing to concede the extent of their losses--which would mean allowing the land to be sold at today's depressed prices, for development by others--the neighbourhood's prospects will remain dim.
Unlike many similarly distressed communities, however, Tomihisa finally has someone trying to bring order to the tangled mess of parties. Hiroichi Shoji, a 76-year-old retired university lecturer who lives in the area, formed a union of residents last year to revive the redevelopment plan. In April, parliament passed a budget that includes ¥300 billion ($2.3 billion) for buying land to revitalize the real-estate market. Western-Tomihisa residents hope some of that money will be used for their area.
In an impressive feat of consensus, Shoji has lined up all the remaining individual landowners in Tomihisa behind a new redevelopment plan for the 13,048- square-metre neighbourhood. But about half of the district is owned by Collins' group companies--and there lies the rub. Collins, whose former president, Masao Kobayashi, was convicted of tax evasion, hasn't been making loan payments for years. Its creditors have temporarily seized the Tomihisa land, which gives them the final say over any sale of the property. Yet they haven't foreclosed on the loans and forced Collins into bankruptcy because they prefer not to fix their losses once and for all.
So Shoji and the locals must deal with a bewildering variety of creditors as they try to promote their plan. One is Nippon Credit Bank, one of Japan's most troubled banks, with ¥1.7 trillion in bad loans as of March. A second is a government body called the Housing Loan Administration Corp., which now owns ¥61.9 billion in loans made to Collins by a collapsed housing lender. Then there is a mysterious foreign "vulture fund" called BMF Investment Corp., which purchased the Collins loans made by yet another collapsed nonbank lender.
No one seems to know much about the vulture fund, which has set up shop behind heavy security in a fancy Tokyo office tower with an unlisted phone number. The fund refuses to comment, and Tomihisa residents say they were turned away when they attempted to discuss the redevelopment with it. Although BMF purchased the loans at a discount in December 1997, according to the newspaper Tokyo Shimbun, Tomihisa residents didn't even hear of its existence until June of this year.
Although the odds of success may seem long, western-Tomihisa residents can gain some comfort by looking next door at a rare example of fighting out of a credit squeeze. In January this year, creditors agreed to let Collins sell land in eastern Tomihisa--separate from Shoji's neighbourhood--to Kintetsu Real Estate, which will build apartments and a shopping mall. The proceeds of the sale went to the creditors, who in turn wrote off loans made to Collins over that property. The creditors recovered only a little more than 10% of the original loan value, according to Tokyo Shimbun.
The newspaper Mainichi Shimbun estimates that nearly 1,000 areas nationwide in Japan suffer a plight similar to western Tomihisa's: A development project has failed, and the area has been left blighted. This is important not only for the areas in question but for all of Japan. Development means jobs at construction companies--which account for 10% of the workforce--and demand for materials such as steel and concrete. A country that leaves huge plots of prime property unused for seven years can't hope for much economic vitality.
Tomihisa wouldn't even be close to a solution if it hadn't been for the tireless volunteer work of Shoji and his union. Many neighbourhoods remain locked in a stalemate with no prospects in sight. Legislation now before parliament--part of the government's "Total Plan" for the bad-loan problem--would set up mediation panels to untangle conflicting claims on property that is held as collateral for bad loans. But all parties still have to agree to a solution. Creditors who want to pursue their claims in court face long delays.
Shoji is now hoping that the state-run Housing & Urban Development Corp. will step in and buy all of Collins' property. Locals such as noodle-shop owner Sasano have agreed to let their land be used in the redevelopment. But price is a sticking point. Land prices in Tomihisa have fallen by about 80% since their peak in the bubble days, says Koichi Ohno, president of Ohno Land Appraisal Institute, a private think-tank.
The state-run housing corporation can't pay much more than the market price, yet creditors want to collect as much as possible. Otherwise they may have to post huge losses. Nippon Credit Bank refuses to comment, but many banks would rather leave bad loans on their books than fix their losses for good. In the meantime, Tomihisa slowly decays. Squatters have moved into some of the vacant homes, and residents say the police don't bother to kick them out. One empty house was set on fire. "The government should take responsibility for the bubble," says Shoji, a chain-smoker and incessant worker who likes to update his group's Internet site. "We're victims of mushikui."
If all goes well, the housing corporation and locals will embark on a redevelopment project that includes condominiums, shopping malls and facilities for the elderly. "About 60% of Tomihisa residents are elderly," says Yoshiko Masuda, an architecture graduate student who created the development blueprint. "West Tomihisa is a miniature of Japan's problems, with bad loans and the ageing society and everything."
Residents Shoji and Sasano try to look on the bright side. While the bubble brought in huge sums of money, says Shoji, it also broke down community ties. "The developer would come around and tell you not to tell your neighbours about the deal because you got a special offer," he says. "So people became suspicious of each other." And Sasano says he's glad Tomihisa can be redeveloped without scattering the remaining residents in all directions. "I'm glad I didn't move," he says. "Ordinary folks like us don't need hundreds of millions of yen anyway."
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Updated September 19, 1998
