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Macquarie bullish on Taipei property market

Taipei's already sizzling hot housing market will continue to grow on the back of strong demand, driven by low mortgage rates and inflationary concerns, according to a recent report released by Macquarie Securities.

Investors are recommended to cash in on quality developers that could enjoy significant upside, the Australian brokerage said.

"We are optimistic about the Taipei housing market, while remaining selective on the Taiwan property sector as a whole," Macquarie Securities said in a report released last week.

The capital's average housing price beat its expectations by growing 7.6 percent to NT$391,200 (US$11,912) per ping in the second quarter from NT$363,500 per ping a year ago, the brokerage's statistics showed.

This was after a strong growth of 4.6 percent year-on-year in the first quarter, the data showed.

New projects launched for the third quarter have also seen robust pre-sales, the securities house said, citing Hung Poo Real Estate Development Co's (宏普建設) pre-sale ratio of 50 percent a month after launching a project in July.

Macquarie Securities believed that demand was boosted by historically low mortgage rates and impulse buying to beat inflation.

Tight land supply in Taipei, which has given developers more negotiating power, and increasing investment demand, especially for small units, would continue to drive up the property market, the report said.

Average primary housing prices in Taipei were expected to rise 7.5 percent this year from a year ago, it said.

However, some industry insiders have also expressed concern about the property market's outlook, as the housing market in the greater Taipei area, inclusive of Taipei County, experienced last month its first setback in three years since the outbreak of SARS in 2003.

The monthly transaction volume slid 5 percent sequentially last month, while the average housing price fell slightly by 2 percent month-on-month to NT$275,000 per ping over the same period, according to Evertrust Rehouse's (永慶房屋) latest data released last week.

Also, the time required to close a deal became longer last month, as each buyer viewed on average 11 houses before purchase was made, up from an average of 5.5 houses in May, the data said.

Evertrust Rehouse president Yeh Ling-chi (葉凌棋) attributed the slowdown to hesitation among first-time home buyers in the wake of the storm over credit abuse, limited wage increases, declining consumer confidence and political unrest.

As to when the property market would recover depends on positive political and economic developments that could revive consumer confidence, Yeh said.

Despite these rising concerns, Macquarie Securities was largely optimistic and raised its forecast for housing prices in Taipei to a compounded annual growth rate of 5 percent until 2008, up from its previous forecast of 1 percent, supported by tight new supply given limited land supply and continued demand from home buyers and investors.

The Australian brokerage thus suggested that "investors use the recent price weakness to pick up shares in quality Taipei developers."

Huaku Construction Co (華固建設) and Chong Hong Construction Co (長虹建設) were the brokerage's top picks because of their "superior management efficiency" and "bright earnings outlook."

Macquarie Securities raised its target prices for Huaku to NT$91.40 from NT$76.70 and for Chong Hong to NT$135.3 from NT$113.5.

The brokerage maintained its "underperform" rating on Cathay Real Estate Development (國泰建設) given its higher exposure to property outside Taipei, and was conservative on overvalued players like Taiwan Fertilizer Co (台肥).
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