As many as 31 municipalities in Tokyo and neighboring prefectures are suffering from the fiscal burden of long-unsold plots of land owned by public-sector developers to which they have provided loan guarantees, according to the latest survey by Kyodo News.
Land-development public corporations have suffered badly from the collapse in land prices after the asset-inflated bubble economy of the late 1980s burst. The Kyodo survey examined the fiscal 1999 books of 176 such corporations in Tokyo, Kanagawa, Saitama and Chiba prefectures.
These corporations borrowed money from banks when they purchased the land for development during the boom years, but were left with only the debt burden when the value of the land went down.
The survey shows that, in 31 municipalities that have provided loan guarantees to developers, the burden of loan guarantees has exceeded a level that the Home Affairs Ministry considers requires an injection of state subsidies to keep them in sound fiscal health.
According to the ministry’s guidelines, a municipality’s fiscal health is deemed to be at risk if the aggregate book value of land properties to which it has provided loan guarantees and which have remained unsold for more than five years tops 20 percent of the municipality’s tax revenue and grants from the national government.
The ministry may also offer special assistance to a municipality if the aggregate value of land to which it has provided a loan guarantee exceeds 50 percent of its tax and grant income level.
The 31 municipalities were shown by the survey to fall into one of these two categories.
The Home Affairs Ministry estimates that there are more than 200 municipalities in similar situations across the country and disposal of assets that have gone sour, including idle plots of land held by public-sector developers, could put those cities and towns in fiscal crisis.
In Toda, Saitama Prefecture, the total value of long-unsold land to which the city has provided loan guarantees reached 29.9 billion yen, or 130 percent of the city’s tax and grant income — significantly above the ministry standard.
Toda was followed by Mobara, Chiba Prefecture, at 99.9 percent, Kawaguchi, Saitama Prefecture, at 77.2 percent, and Minami-Ashigara, Kanagawa Prefecture, at 73.1 percent, according to the Kyodo survey.
The 176 land-developing corporations covered in the survey were burdened with a total of 815 hectares of long-unsold plots of land, which had a combined book value of 1.2 trillion yen.
Interest payments on the loans for these properties alone will reach 15 billion yen in fiscal 2000, and developers are under pressure to dispose of their landholdings to reduce the debt burden.
However, many of them will end up with large losses if they try to sell the land because prices are still experiencing a slump. It would also be difficult to put the land to public use because of the shortage of funds at many of these municipalities.
Last month, Toda city announced the sale of some plots of land held by the local public-sector developer. One of those put up for auction is a 1,500 sq. meter tract with a book value of 430 million yen, which has been awaiting a buyer for 18 years.
The Toda developer stands to lose 150 million yen even if the plot is sold at its desired price, which will be covered by a reserve fund.
Similar loss-making sales, however, will become difficult once the reserve fund is used up — probably as early as next year — and the fate of the remaining 106,000 sq. meters of land, with a book value of 40 billion yen, is unknown.
“Some 600 million yen each year, or 1.6 million yen each day, is wasted. We are now paying the bill for having purchased too much land without specific plans for its use,” Toda Mayor Kunio Jinbo said.
Like Toda, the city of Mobara aggressively bought tracts of land during the bubble years as substitute plots for residents who would be required to move as part of the city’s street redevelopment project.
However, the redevelopment project itself hit a snag as state subsidies were cut and the city’s finances worsened in the subsequent economic slump.
The city ended up holding land plots worth some 18 billion yen in book value — roughly the same as its annual budget — that remain unsold more than five years later. Interest payments alone have already cost the city some 5.2 billion yen.
Kunio Okuda, a tax accountant and a member of a national association of civic ombudsman groups, said these municipalities would have already gone bankrupt if they were private-sector companies, adding that losses from sales of their landholdings will eventually have to be covered by taxpayers’ money.
To avoid the snowballing interest burden, they will need to sell the plots as quickly as possible and repay the debts, Okuda said.
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