In the wake of a widening investment loan fraud scandal, a second share house company in Tokyo has filed for bankruptcy.
The company operated by developing and selling share houses to individual investors and then managing the properties on behalf of the buyers, offering high yields and guaranteed rents. However, as was the case with the other defunct share house operator that filed for bankruptcy last month, the vacancy rates of the share houses was higher than forecast and the company was not able to make the guaranteed rent payments to investors.
The majority of the company’s clients had purchased share houses with financing provided by Suruga Bank. The average share house had 14 rooms. With an assumed average loan of 150 million Yen taken out by an investor per property, the scale of loans could reach the 15 billion Yen (approx. 137 million USD) range.
One investor borrowed 86 million Yen for a 10-room share house. The share house operator had provided a net rental guarantee of 560,000 Yen per month for 30 years. Loan repayments were 400,000 Yen per month, resulting in a positive cash flow of 160,000 Yen each month for the investor. For the first year the investor was receiving the rent as promised, but received notice that the operator was cancelling their rental guarantee late last year. The investor started collecting rent directly from the share house tenants. After reducing the rent and getting the occupancy ratio up to 70%, the investor was left with a net rent of 250,000 Yen per month, falling short of their 400,000 Yen/month loan repayments.
According to the Teikoku Databank, the company, which was established in 2015, had debts of 1.369 billion Yen as at October 2016. In 2016 they reported sales of 4.311 billion Yen. By 2017 they had developed over 100 share houses for clients and were opening as many as 10 new properties each month in locations like Adachi, Katsushika, Itabashi and Nerima wards. Towards the end of 2017 oversupply in the local share house market caused vacancy rates to climb, while lending conditions tightened considerably. In December 2017, all company executives resigned, while rental payments to investors ceased. In early March 2018 the company abruptly moved out of their office in central Tokyo to an unknown address, but insisted they were operating as normal.
The Nikkei Shimbun, May 23, 2018.
TBS News, May 23, 2018.
The Mainichi Shimbun, May 24, 2018.
Shukan Asahi, March 9, 2018.