Japan property stocks slide after firm goes bankrupt

TOKYO, June 25 (Reuters) - Heavy selling hit shares in Japanese property firms on Wednesday after real estate developer Suruga Corp 1880.T fell into bankruptcy, fanning fears about the health of a sector hurting after the global credit crunch.

Condominium developer Urban Corp. 8868.T tumbled 16 percent and rival Zephyr Co. 8882.T, which announced the bankruptcy of a subsidiary earlier this month, sank 12.2 percent.

Industry leader Mitsui Fudosan Co (8801.T) tumbled 2.5 percent, helping drag the real estate sector sub-index .IRLTY.T down 3.3 percent. That, in turn, helped push the broader TOPIX Index .TOPX down 0.7 percent.

Market players are becoming increasingly worried that more developers and real estate companies might go bust as they suffer from tight financing, soaring construction material prices and weak consumer spending, analysts and traders said.

Suruga was untraded due to a glut of sell orders at 121 yen, down 40 percent from Tuesday's close, after the Yokohama-based firm filed for court protection from creditors under the civil rehabilitation law with 62 billion yen ($575 million) in debts.

Suruga said it was unable to secure new financing from banks after staff members of a land-purchasing firm were arrested in March for alleged illegal operations to move tenants out of a Suruga-owned building.

The problems are the latest sign of an increasingly severe business environment for property firms, with small and medium-sized developers hardest hit.

Investors fear more might follow, analysts and traders said.

"Major firms should be fine, but small firms and newcomers have succeeded in the past few years mainly because of massive influx of foreign money into Japan's real estate market," said Norihiro Fujito, a general manager of investment research and information division at Mitsubishi UFJ Securities Co.

"The question now is how they secure finance with interest rates moving higher and lots of unsold properties," he said, voicing concerns the sector might see more bankruptcies.

A trader, who declined to be named, said market players were closely examining the balance sheets of real estate developers and construction companies and few would be willing to invest in the sector for a while.

Suruga's bankruptcy comes as the global credit crisis muddies the outlook for Japan's once-soaring property market. The Tokyo Stock Exchange's REIT index .TREIT has fallen about a quarter this year and nearly halved in value since a peak last May.

In addition to fall-out from the subprime loan crisis and weak consumer spending, Japan's property firms and builders have been hit by soaring prices for steel and other construction materials, making it more difficult to cut prices to clear unsold properties.

The country's largest condominium developer, Daikyo Inc (8840.T), said this week it may cut prices of some of its unsold condominiums by 5 percent to 10 percent. It had some 800 unsold condominiums as of March 31.

Daikyo's shares fell 2.8 percent on Wednesday. ($1=107.78 Yen) (Editing by Rodney Joyce)