Investors dumped stocks in Japanese property and builders on Thursday after developer Urban Corp failed in the biggest collapse by a listed Japanese company in six years, which fanned fears others might follow.
Urban, which failed with debt of $2.4 billion, was the latest in a string of Japanese real estate firms to fold as banks rein in lending to small and medium-sized developers seen at risk as the world's No.2 economy flirts with recession.
"Urban failed even after reporting a profit last year, and lots of firms in this sector have borrowed heavily. How can investors tell which companies are in danger?" said Tsutomu Yamada, a market analyst at Kabu.com Securities. "That's why real estate and related stocks, except for the biggest companies, have become untouchable." he said.
The Tokyo Stock Exchange's real estate sector index sank 3.5 percent by the end of the morning session on Thursday, helping to push the benchmark Nikkei 225 Average lower.
The Tokyo Stock Exchange's REIT index fell 3.3 percent. The index has nearly halved since hitting an all-time peak in May last year.
The collapse of Urban was the largest in debt terms by a listed Japanese company since financial firm First Credit Corp fell in 2002, and follows the failures of mid-sized developers Suruga Corp and Zephyr.
Apartment developer Joint lost 18 percent to 196 yen and Creed shed 11.8 percent to 75,100 yen.
Shares in building firm Tobishima plunged 17.4 percent to 19 yen and those in Tokyu Construction lost 11.5 percent to 301 yen.
Urban's collapse also hit its main lender Hiroshima Bank, whose shares fell 2.9 percent lower to 396 yen after it cut its first-half profit forecast to write down unsecured loans to Urban.
Urban's shares, which have been moved to the Tokyo bourse's liquidation issue section ahead of its delisting on September 14, were untraded, overwhelmed by sell orders at 32 yen, down 48 percent from Wednesday's close.