One of the most widely reported events in the Japanese stock market recently has been the collapse of property developer Zephyr Co, under the weight of $890 million worth of debt. It was the largest failure of a listed firm in Japan in almost five years, with the company previously being listed on the first section of the Tokyo stock exchange. The collapse came after Japanese banks tightened lending criteria to real estate companies, which have come to be seen as risky investments, with sales of apartments weakening and the general economic outlook in Japan, the world's second-largest economy, dimming.

Developers in Japan have been looking to balance their budget sheets by selling vacant and surplus houses and land, however the prevalence of this solution has depressed prices. Property in the country is, or would be, selling at a loss, only deepening the real estate crisis in Japan.

Yutaka Kakizaki, a real estate sector analyst from the firm Chibagin Asset Management, believes that "even if they sell excess property, buyers would not pay much and seek a big bargain". "It will just be a matter of time before we see the next", said Kakizaki, referring to another corporate failure.

Unfortunately, offloading property, even at a loss, is the only option for some investors, as falling stock prices make market conditions difficult, and raising funds from the market near impossible.

Urban is another property developer that has fallen on hard times after investors became unsettled about Zephyr's collapse and the property values in Japan generally. They lost 16.7% in one day in the middle of 2008, while C's Create shared a similar fate. Their stocks plunged to 5,850 yen, a loss of 14.6%. Joint Corp shed a similar amount, around 16.1%, taking them down to 401 yen a share.

A company more directly impacted by Zephyr's collapse was the civil engineering company Wakachiku construction. The company announced that a 1.8billion yen loan to Zephyr may not be able to be recovered. Tobishima sympathized with Wakachiku Construction; they have a 1.27 billion yen loan to Zephyr that also may not be able to be recovered.

The impacts on the real estate sector in Japan that are causing such trouble for developers include weak consumer spending, a decline in land prices, and a rise in construction material prices as China's need for resources grows. The trouble is expected to continue into the second half of 2008, with condominium sales in Japan in the Tokyo area expected to fall 16.3% in the second half, compared to the same period in 2007. The 10th consecutive month of declines in the number of condos for sale in Japan was seen recently; June's figures showed a 30% drop in numbers to around 4,000 units.

Some foreign investors have been willing and able to bolster the property values in Japan. Dalton Investments will put $450 million into Japanese REITs, and another $500 million into a management buyout fund. In Singapore, GIC Real Estate (which is the government property investment arm), bought the Westin Tokyo Hotel from funds managed by Morgan Stanley as well as the Starwood Capital Co, for a sum undisclosed.

These sales will help the struggling property sales in Japan, however as long as the global credit crunch continues the Japanese real estate market is expected to suffer.