Tue, Aug 31, 2004 - Page 11 News List

Cathay, Huaku advance as jobs boost home sales

DOMESTIC STORY As long as growth outpaces any interest rate increases, a market watcher says that the property market will boom and deserves investment

BLOOMBERG

Shares of Cathay Real Estate Development Co (國泰建設), Huaku Construction Corp (華固建設) and other builders may extend their gains as a pickup in the country's economy creates jobs and boosts home sales.

Cathay Real Estate, the nation's biggest property developer, has risen 29 percent in the past year and Huaku Construction has almost quadrupled as home sales benefit from record-low lending rates. Prospects of higher interest rates this year are unlikely to stall the recovery as rising employment sustains housing demand, said Renee Hung of Value Partners Ltd in Hong Kong.

"We believe in the domestic story," Hung said. "As long as the domestic economy doesn't deteri-orate, property stocks could still see some upside."

Property stocks are a bright spot among Taiwan's NT$12.6 trillion (US$370 billion) of traded shares, 20 percent of which are held by overseas investors.

Shares of developers began their rally last year as the property market started to recover from a collapse in the early 1990s, when a glut of new buildings and a stock-market crash sent home prices tumbling for over a decade.

Average property prices in Taiwan fell as much as 50 percent between 1991 and 2001, according to a housing index compiled by Taipei-based real-estate broker Sinyi Realty Co (信義房屋). The index climbed 14 percent in the three months to June 30.

To help the property market, the government introduced mortgage subsidies in August 2000. A total of NT$1.5 trillion has been provided since then, according to the bank. In 2002, the government further boosted the market by cutting taxes on capital gains from real estate.

An added incentive for home buyers has been low borrowing rates. The nation's central bank has cut its key interest rates 15 times since December 2000, most recently in June 2003 after a similar move by the US Federal Reserve. The cuts lowered its key interest rate to a record 1.375 percent.

Cathay United Bank Co (國泰世華銀行), the banking arm of Cathay Financial Holding Co (國泰金控) which in turn is an affiliate of Cathay Real Estate, said second-quarter lending to home buyers rose 7.5 percent to NT$193.4 billion from a year earlier.

"If the economy grows faster than the rise in interest rates, there will still be demand for homes," Sinyi Vice President Victor Chang (張欣民) said. "I'm optimistic that our housing index could rise about 10 percent in the second half of this year from a year ago."

The Taiex Construction Index, which tracks 29 builders and real-estate firms, has risen 39 percent in the past year, the most among 19 industry groups in the TAIEX.

The nation's unemployment rate was 4.62 percent in July and the government forecasts the economy will expand 5.87 percent this year, the fastest since 1997.

Shares of developers may have benefited from a drop in electronics stocks, which comprise almost half of the TAIEX.

"Property stocks offer an alternative to tech if you want to outperform the market," said Julian Wang, a Taipei-based analyst at ABN Amro Asia Ltd. "For those who need to invest in Taiwan, consumption-related or property stocks would be a good choice."

Shares in the construction index are priced at an average of 80 times earnings compared with 17 times for 280 computer-related stocks in the TAIEX Electronics Index.

"We're coming to a point where there won't be a selloff in tech stocks anymore relative to local-consumption stocks," said Christoph Himmelstein, who helps manage US$400 million in Asia excluding Japan at HSZ Singapore Pte.

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