LAND prices in Japan fell by 1.2 percent in the twelve months through the end of June, with the rate of decline accelerating for the first time in five years as lenders tightened credit after the United States subprime market collapse.

Land prices in the nation's three major metropolitan areas, more resilient compared with rural districts, rose at a slower pace than in the previous year, the Ministry of Land, Infrastructure Transport and Tourism said yesterday.

Japan's real estate market stabilized in recent years after being locked in a slump for more than a decade through the 1990s, according to Bloomberg News. The outlook for the market had now turned severe, said Hiromichi Iwasa, chief executive officer of Mitsui Fudosan Co, Japan's largest developer.

''We will face a tough time going forward as the global economy slows, energy and raw materials prices rise, and capital investment and consumer spending decelerate," Iwasa said.

The 1.2 percent decline in overall prices was steeper than the 0.5 percent drop in the previous year, while growth in land values in Tokyo, Osaka and Nagoya slowed to 1.7 percent from 5.1 percent a year ago, the land ministry said.

Land prices may drop even more following the bankruptcy of Lehman Brothers Holdings Inc and the bailout of American Insurance Group Inc. The possibility of property sell-offs by these companies may send property prices lower, said James Fink, senior managing director of property consulting firm Colliers Halifax in Tokyo.

"Lehman directly and indirectly controls huge amounts of real estate assets as does AIG," said Fink. "Prices will definitely fall further."

Increases in commercial land prices in Japan's three largest metropolitan areas slowed to 3.3 percent during the 12 months ended June 30 from 10.4 percent a year earlier. Residential land prices on average tapered off to a 1.4 percent rise from 4 percent a year ago.

Japanese banks have cut back on lending to the real estate sector after losses related to bad loans increased amid a spate of bankruptcies in the industry. The value of bad loans at Japan's 108 regional banks rose 81 percent to 149 billion yen (US$1.42 billion) in the three months ended June 30 from a year earlier.