Japan property stocks slide after firm goes bankrupt

By Mariko Katsumura

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 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.