To the media, researchers, and others
The natural and nuclear disaster that hit the eastern Japan in 2011 devastated the real estate business. The economic effect exceeded that of the 2008 financial crisis in the rise of foreclosure auctions.
Higher number of auctioned properties
Foreclosed properties generally are put on court auction blocks roughly one year after a debtor defaults on the mortgage payment. In recent years, compared to commercial and other business properties, there are more apartments and houses.
Foreclosed properties to be auctioned increase at the end and beginning of year, because of higher unemployment rate and excess-supply in the real estate market. A default does not immediately follow a deterioration of the debtor employment. With the public unemployment insurance for six months, and with savings, payments usually do not stop for about a year. For two months after debtor stops payments, the credit does not become non-performing subject to foreclosure and court auction. The debtor negotiates with the lender on rescheduling payments, and on the asset sale, for two months.
After the two month period, however, the credit automatically becomes non-performing; the court auction process initiates, and claims for distributions are filed. And after six months from then, the auction is held.
From the default, there are talks with the lender institution for one to two months; filing for the court auction in three months; filing claims for distributions in four months; preparing the property descriptions in five to six months; beginning of onsite viewing in eight months; then the auction in nine to ten months.
Time outline of the process is as shown above. Characteristic of recent years is that there are more assets ending up on the auction blocks whereas they used to be sold voluntarily on the general market after the filing for auction.
In a general case, a debtor still receives the unemployment insurance for 70% of the former income for six months, and runs out of fund in the seventh month. And in eight to twelve months after this time, the property is put to auction. It usually takes about 18 to 24 months from the job loss to the auction process
Forebearance or moratorium after the decision to start the auction does not halt the process.
Effects of increased forclosures and the need for transparency
Roughly two to three percents of all real estate in Japan are on the market each year. The prices of remaining 97% to 98% of all real properties fluctuate depending on the trades, usually in price per tsubo or square meter. So the value of most of assets are affected even though they have nothing to do with real estate transactions.
Voluntary sales and court auctions of properties in distressed situations reduce the average price of assets in the market. Devaluations of assets held by companies also weaken their fund raising ability, which in turn results in the lower income for employees, who then face difficulties meeting the mortgage payments.
More defaults lead to the deteriorated strength of financial institutions. To solidify the financial base of economuy, improving the transparency and availability of court auctions can also contribute. With improvement, there will be more bidders, and winning bids will rise, so that lenders collect more of their credits, reducing their non-performing loan losses and reserves.
This is the market for court auctions FKR that operates the 981.jp aims. And we hope you will join us in this effort.
On mortgage loans
Even though the national debt of Japan is 1.7 times its GDP, the interest rate remains low, with fixed 10 year mortgage rate at about 1.4%, partly because of past surpluses in balance of trade and current account. If the bond rate goes up, floating mortgage rate may exceed 3%. Higher rates, coupled with higher utilities and taxes, may result in more defaults and foreclosures.
Work of FKR
FKR is concerned about rising cases of court auctions. There are more forecloses homes. FKR wants to work with real estate companies nationwide to build a structure where the debtors in auction cases can recover.
As the ratio of court auctions to the total real estate transactions rises, FKR works to promote the market, raise the bid prices, so as to help debtors, lenders, real estate agents, and buyers.
FKR logo has five parties hands in hands work together to restore real estate.
Land in Japan is a scarece and cherished resource. We are obliged to effectivly utilize and enhance the value of this resource, and to pass it onto the future generations.
FKR and the 981.jp work as bridges between five parties.
- Debtor: property owner
- Creditor: lender
- Court: government
- Bidder: buyer of property）
- Real estate agent: service provider