Japan's Top Contractors Face Slumping Real Estate Market

Strategic Insights -

Taisei Corp., Kajima Corp., Obayashi Corp., and Shimizu Corp., Japan's largest general contractors, are bracing for lower profits from real estate development operations due to a decline in market prices. In response to declining profit margins in construction, these companies have increasingly turned to real estate development as a way to diversify their revenue streams. However, the current market conditions are expected to take a toll on their real estate development profits, with Shimizu facing a 63% drop to 6.5 billion yen, while Kajima, Obayashi, and Taisei are projected to see 23%, 23%, and 1% profit falls, respectively.

Key Takeaways:

  • Three of Japan's top four general contractors (Taisei Corp., Kajima Corp., Obayashi Corp.) are expected to see lower profits from real estate development operations, with Shimizu Corp. facing the largest drop at 63% to 6.5 billion yen.
  • Shimizu Corp.'s real estate development profit is expected to plunge by 63% to 6.5 billion yen, making it the largest decline among the four contractors.
  • Kajima Corp., which held back on new development projects, is likely to see a 23% profit fall from real estate development operations to 25 billion yen.
  • Obayashi Corp. is expected to record a 23% slide in real estate development profit to 12 billion yen.
  • Taisei Corp. is projected to eke out a 1% profit gain from its real estate development businesses to 22 billion yen.
  • All four contractors are forecast to see reduced orders value on a parent-only basis for real estate development for the year ending March 31, 2010.
  • Shimizu Corp. is expected to log the largest decline at 66% to 20 billion yen in orders value.
  • Real estate development operations have become a crucial component of the contractors' revenue streams, as declining profit margins in construction operations necessitate diversification.

Statistics:

  • Shimizu Corp.'s real estate development profit is expected to drop by 63% to 6.5 billion yen.
  • Kajima Corp.'s real estate development profit is forecast to fall by 23% to 25 billion yen.
  • Obayashi Corp.'s real estate development profit is expected to slide by 23% to 12 billion yen.
  • Taisei Corp.'s real estate development profit is projected to increase by 1% to 22 billion yen.
  • Total real estate development orders value for all four contractors is expected to decline, with Shimizu Corp. logging the largest decline at 66% to 20 billion yen.

Sources:

  • Nikkei, "Three top Japanese contractors face tough times in real estate market"