TOKYO residential property prices may be poised for a major decline because of excess supply and flagging demand, according to Minoru Mori, chairman of Japan's biggest privately held developer.

"We foresee full-blown drops in residential property prices," Mori Building Co's chairman said in a weekend interview in Shanghai with Bloomberg News.

Japan's slowing economy and the credit crisis that tightened lending have damped demand for commercial and residential property in Japan.

The slump in Tokyo's condominium market may last longer than the drop after Japan's asset-price bubble burst in 1990, according to an estimate by the Real Estate Economic Research Institute.

Condo supply in Tokyo fell 24 percent for the first six months of the year from the same period a year earlier.

The number of new condos put up for sale in Tokyo, which stayed above 80,000 units since 1999, fell to 69,194 in 2007 because sales declined and inventories rose.

Commercial real estate was holding up better than residential property, said Mori.

"Tokyo's commercial property market remains relatively healthy. The current price decline probably won't be more than 10 percent," Mori said.

The Topix Real Estate Index fell to a two-week low yesterday, declining 4.7 percent to 832.75 in Tokyo, and the Tokyo Stock Exchange REIT Index also dropped to the lowest level in two weeks, falling 7.7 percent to 740.30.

Tokyo-based Mori is seeking to manage the impact of the global financial market turmoil. Lehman Brothers Holdings, which last month filed for the largest bankruptcy in history, was a tenant of the developer's Roppongi Hills complex.

Nomura Holdings, which agreed to buy Lehman's European and Asian assets, had expressed an interest in taking over Lehman's lease at Roppongi Hills, Mori said in the interview.

Japan's biggest brokerage also hinted at possibly increasing the floor space it leased at the complex, he said.