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Business trends

Japan's Kajima, Obayashi branching out beyond construction

General contractors plan for life after Olympic-fueled building boom

The Kachidoki The Tower condominium helped lift Kajima's profits to a record high.

TOKYO -- Armed with growing war chests amid a construction boom, Japan's general contractors are expanding their horizons to ensure growth even after building demand slows following the 2020 Olympics here.

Kajima is allocating 20 billion yen ($179 million) for the fiscal year ending in March to turn property development into a full-fledged business arm. It will also consider a tie-up with an outside developer. Property development tends to be more profitable than Kajima's mainstay construction business, and ensures a stable stream of rental income as well.

With demand growing for construction and redevelopment projects tied to the Olympics, the company saw net profit surge 45% last fiscal year to a record 104.8 billion yen. It was effectively debt-free as of the end of March, holding 374 billion yen in cash or cash equivalents against 372.9 billion yen in interest-bearing debt.

Kajima's coffers are still full even after raising its dividend for last fiscal year by 8 yen to 20 yen per share. "In order to cultivate a revenue source outside the construction business, we will actively acquire real estate," said Director Hironobu Takano.

The Tokyo-based company is quickly gaining experience in the field. Kachidoki The Tower, a major condominium developed with Mitsubishi Estate and other partners, helped lift its earnings last fiscal year. Kajima suffered massive losses in the property business after Japan's bubble economy burst in the early 1990s. It plans to cap annual investment to avoid the same mistake.

Meanwhile, rival Obayashi is looking to invest 100 billion yen in renewable energy in the five years through March 2022. It is already running dozens of solar plants across Japan, with plans to make inroads in wind and biomass power.

It is unclear what Japan's construction market will look like after the Olympics. Some in the industry worry that profits will shrink, pushing key players to prepare a plan B ahead of time.

(Nikkei)

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