An academic research group has found that about 700 prefectural and municipal land development entities nationwide held a combined 2.5 trillion yen in nonperforming assets at the end of fiscal 2001.

The assets, including hidden losses from land price falls and accumulated interest on borrowings, will probably undermine the financial standings of local governments that invest in public land developers and provide them with loan guarantees.

According to research group member Nobuo Akai, a professor at the University of Hyogo, it is the first time a group has estimated and compiled nonperforming asset data on public land developers.

The group found that the bad assets increased from fiscal 2000, despite efforts by local governments to improve the financial footing of the developers through such measures as land sales.

"Given that land prices remain on the decline, nonperforming assets may have either leveled off or risen since then," Akai said.

Public land developers nationwide possessed about 28,000 hectares at the end of fiscal 2001, with a combined book value of 7.2 trillion yen.

But the book value of the land is overvalued because interest on borrowings to buy the properties has been tacked onto the actual purchase prices. The group thus calculated the book value of land held by 700 public entities at 6.7 trillion yen.

Latent losses on lower land prices came to 1.4 trillion yen and interest totaled 1.1 trillion yen, thus the market value was actually 4.2 trillion yen.