Despite rising property prices, market experts are advising caution as real estate fundamentals are trending downward, signaling a potential oversupply.
The optimism arising from perceptions of the incoming administration’s pro-China policies appears to be the only factor driving the local economy and stock market and boosting domestic housing prices, several market watchers warned in a forum on Tuesday.
Speaking on the buying frenzy that has taken hold of the market, Timothy Ma (馬玉山), chairman of Kindom Construction Corp (冠德建設), said: “Home buyers were ready to pay 20 percent more for our properties one day after the presidential election.”
Ma said that was a good example why many believe domestic property values will continue to rise this year.
“The local property market is unlikely to decline too quickly on the expectation that the TAIEX may soon leap over the 10,000 points level [once improved cross-strait economic ties bail out the local economy], unless a non-economic disturbance occurs,” he added.
But Chuang Meng-han (莊孟翰), an industrial economics professor at Tamkang University, wasn’t as optimistic as aggregate mortgages have reached NT$6 trillion (US$197.1 billion), or 23 percent of the nation’s total deposit savings of NT$26 trillion.
“Future demand may not be as big as expected,” Chuang said.
Statistics shows that the housing vacancy rate remained high at 13.9 percent, or 1.06 million units last year, he said.
This is a worrying signal of potential oversupply, as 87.8 percent of the nation’s households, which total 7.51 million, already own a house, he said.
With land developers plunging into the market to build more homes than needed, oversupply is inevitable and that will create pressures that will weigh on developers, he said.
Statistics also shows that the nation’s developers had applied for licenses to build more than 100,000 homes each year in the past four years amid an annual demand of less than 90,000 units.
Affordability could also affect demand as property prices hit historic highs in recent years. In particular, property prices in Taipei had soared to 5.4 times buyers’ annual income in early 2003 to nearly nine times late last year.
The prices of pre-sale properties in Taipei City rose 18.3 percent year-on-year to an average of NT$531,000 per ping (3.3m²) last year, while those in Taipei County hit a record NT$244,000 per ping.
“Many developers may soon begin to feel the pinch from a liquidity crunch if future housing sales are not as satisfactory as expected, which may result in a real estate bubble,” Chuang said.
One exception would be sales of luxury homes for high-income earners to locals or foreigners, he said.
The nation’s nouveau riche from the tech sector or returning China-based Taiwanese businesspeople have become a niche market for land developers specializing in customized, upscale units.
But hiking the value of luxury homes is “a money game for the rich, which creates little value for the local property market and its 7.66 million households,” Chuang said.
Billy Yen (顏炳立), general manager of real-estate consultancy DTZ (戴德梁行), believes the domestic luxury home market would remain strong.
Yen said that prices for several pre-sale luxury properties in the upscale Xinyi District in Taipei had gone up by more than 30 percent after the presidential election in March to around NT$1.5 million per ping.
He believes that luxury property prices in the district can go up further to NT$2 million or NT$2.5 million per ping, which would still be relatively cheap compared with luxury homes in Hong Kong and Singapore.
Prices of luxury homes in the world’s top 10 cities averaged NT$5 million per ping in London, NT$3.4 million per ping in New York, NT$2.6 million per ping in Hong Kong and NT$1.76 million per ping in Sydney last year, the realtor’s report showed.
If a super-luxury housing project is built in the district, its prices may be as competitive as those of MarQ on Paterson Hill or the Ritz-Carlton Residences in Singapore, which closed at more than NT$4 million per ping last year, he said.
“A scarce supply of land for such luxury home projects will drive up property value and prices this year,” he said.
DTZ is encouraging potential buyers to acquire the Agora Garden (亞太會館) hotel for reconstruction into a super-luxury housing project that could be sold for NT$4 million per ping.
However, other than luxury homes and grade-A office buildings, Yen shared Chuang’s pessimism about the market in general.
He said that the local property market has already had a bull run in the past four years. Given limited demand and income growth, a downward revision to property prices would be inevitable unless the economy grows significantly to bolster potential buyers’ purchasing power, Yen said.
Perng Pei-yeh (彭培業), general manager of North Rehouse (北區房屋), expressed reservations.
He said the local property market may soon experience a slowdown, “but there won’t be any bubble burst.”
He advised buyers to be cautious and choose properties in good locations as they are defensive bets in case of an economic downturn. Properties near travel infrastructures such as subways are also a safe bet, he said.
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