In spite of rising market concerns, Citigroup Global Markets Inc said yesterday that it did not expect a mortgage crash to happen in Taiwan this year, citing 10 reasons to back its views, including low interest rates and an affordable housing market.
"Despite recent concerns over the Taiwan property market and problems faced by sub-prime mortgages in the US, we think it is premature to forecast a collapse in the Taiwanese mortgage market," Bradford Ti (鄭溫煌), an analyst with Citigroup Global Markets, said in a research note released yesterday.
VIGILANCE NEEDED
However, increased competition over the past several years coupled with a fragmented banking system suggest that banks and regulators will have to be vigilant to prevent a crisis breaking out over the mid-term, Ti said.
The report came at a time when local banks -- including Cathay United Bank (
Mortgage rates in Taiwan remain accommodative with increases of only 5 basis points after hitting a bottom in June last year, compared with a rise totaling 150 basis points in the benchmark interest rates, against a backdrop of a keen price war resulting from an overcrowded banking sector, the report read.
POSITIVE EQUITY
It is believed that Taiwanese households have a significant amount of positive equity in their homes -- an average of 74 percent at the end of last year -- based on total outstanding mortgages and the government's estimate of value of all properties owned by households in Taiwan, the report said.
Also, property prices in Taiwan have been laggard relative to other Asian countries and the US, with a markup of 15 percent to 20 percent from the bottom in the third quarter of 2003, compared with a more significant rise in other markets, Citigroup said.
Properties in Taiwan also remain affordable compared with regional peers.
AFFORDABLE MORTGAGES
Mortgage payments account for only 31 percent of household income on average in Taiwan, with 39 percent in Taipei, versus 58 percent in Hong Kong.
Although the ratio of average housing prices to household incomes has risen 8.8 times in Taipei, it remains well below its peak of 10.5 times back in 1994, the US equity research added.
Other supportive reasons included no bubble in the high-end housing segment, banks and regulators' more vigilant stance, which has lowered mortgage loans growth since the middle of last year, and promising cross-strait openings.
Ti suggested investors hunt for bargain financial stocks on recent dips, recommending Cathay Financial Holding Co (國泰金控), SinoPac Holdings (永豐金控) and Fuhwa Financial Holding Co (復華金控).
However, the draft personal bankruptcy law that unexpectedly passed its first reading in the legislature last week is another looming risk.
The bill allows debtors to be exempted from partial debts and mortgage payers to pay only interests for eight to 10 years without risking having property auctioned off by creditor banks.
CONTRASTING VIEW
With a less optimistic viewpoint, US-based Merrill Lynch said it is concerned that the overly loose regulation is likely to spark unethical behavior that will further hit the already weak banking industry.
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