Supply glut, rising costs threaten property sector

Local property developers and brokers are pessimistic about the real-estate market's prospects in the second quarter of this year amid a supply glut and rising construction costs, according to a report released by the Ministry of the Interior's Architecture and Building Research Institute yesterday.

"Although the economy is expected to improve slightly from last year, all the indexes showed that the property market is likely to see a downturn in the next three months," Chang Chin-oh (張金鶚), professor of land economics at National Chengchi University, told a press conference yesterday.

According to the institute's poll of construction companies, real-estate brokers, financial institutions and industry-related companies, 41.38 percent of respondents expressed a negative sentiment for the second quarter, compared with 27.59 percent who said conditions will improve. Just more than half of the respondents listed the rising cost of construction materials as their biggest concern.

The rising cost of building materials is unlikely to be reflected in the sales volume and average selling price owing to a supply glut that is expected to appear in the second quarter, Chang said.

Other negative factors are rising interest rates, cross-strait tensions and concerns over the possibility of a bird flu outbreak, which offset positive factors like the launch of the nation's first high-speed railway at the end of October, he said.

The results of the poll were released close on the heels of a report released by Macquarie Research Equities last week, which said that housing prices are set to decline by 2 percent to 4 percent overall from this year to 2008 as new housing supply begins to outweigh steady demand.

By region, properties in Taipei City are expected to maintain growth, as the new housing supply is limited by the scarcity of available land, the Macquarie report said.

In the long run, a harmonious cross-strait relationship is the key to boosting the nation's real-estate property market. There will be a huge demand for office and residential buildings once direct links have been established, which will further drive up the prices, it said.

Macquarie issued "outperform" ratings on Huaku Construction Co (華固建設) and Chong Hong Construction Co (長虹建設) based on market expertise and excellent execution.

Shares of Huaku fell 0.27 percent to NT$37.75 and Chong Hong dropped 0.67 percent to NT$37.2 on the Taiwan Stock Exchange yesterday.

The research firm issued an "underperform" rating on Cathay Real Estate Development Co (國泰建設), citing its exposure to intense competition in non-Taipei areas. Cathay shares were down 0.34 percent to NT$14.95.