Japanese real estate slump opens for foreign investors.

The Japanese real estate market is still experiencing an unprecedented slump, marked by a continued acceleration of falling land prices in some core cities and a sellers' market that is generally soft and inactive, according to a year-end analysis by real estate investment company Kennedy-Wilson International (Nasdaq: KWIC), which has a major Japanese division.

"While a growing sense of cautiousness has emerged in the Japanese real estate market and the future economic outlook still appears precarious, Japan's slump means opportunity for foreign investors," said Richard Mandel, president of the Commercial Group at Kennedy-Wilson.

"The purchase of non-performing loan assets will be a lucrative business opportunity for foreign investors," noted Mandel. "Many Japanese banks and non-banking institutions have commenced bulk sales of loan portfolios at greatly discounted prices."

"If you succeed in buying at the right price, you can recover your investments by working out the bad debts, acquire real estate assets at extremely low prices or receive property sales proceeds through legal auctions," said Ryosuke Homma, managing director of Kennedy-Wilson's Japan subsidiary.

However, foreign investors have traditionally had a difficult time entering the Japanese real estate market for a combination of reasons, including unique Japanese customs, rules and regulations, said Mandel. In addition, the tax systems, transaction rules, and land lease regulations in favor of tenants which exist in Japan all serve to confound the foreign investor, he added.

What is the solution to understanding the Japanese real estate market? "The foreign investor needs to employ a team of qualified and experienced Japanese for due diligence and asset management," said Mandel. However, he warns that there are several impediments unique to Japan's business practices that might hinder the foreign investor's lawful right to foreclose a property. They include:

* "Sen-yuh-ya," which translates roughly into "professional occupiers." This is a group-that interferes with the foreclosure actions and legal auctions by recording improper ownership or lease contracts or by illegally occupying the property.

* "Jisage-ya," or professional land price reducers. These illegal occupiers influence and inhibit effective bids at legal auctions, which often results in a reduction in the minimum price for the bid.

"We don't want to discourage foreign investors from entering Japan's real estate market, but rather introduce them to potential problems they may encounter when they enter the market and counsel them as to how to avoid or overcome these obstacles from the onset," said Mandel.