Wed, Dec 17, 2008 - Page 12 News List

ANALYSIS: Property market could gain from interest rates: analysts

RAY OF HOPEOn top of a low interest-rate environment, direct air and shipping links between Taiwan and China could give a boost to the local property market

By Joyce Huang  /  STAFF REPORTER

Rebounding shares and record-low interest rates have rekindled buying interest in the local property market, which could see an injection of an estimated NT$400 billion (US$12 billion), analysts said.

With the interest rates of most bank time deposits falling below 1.5 percent, depositors are likely to settle for property investments, where rentals usually generate a higher than 3 percent return, Victor Chang (張欣民), a consultant to Electronic Realty Associates Inc’s (易而安不動產) Taipei branch, said last week.

Chang expects that 10 percent of the central bank’s NT$12 trillion in long-term deposits to be freed up with investment destinations including property, gold and bonds.

A third of the NT$1.2 trillion in idle capital may end up in property with a better return in the coming months, he said.

The local property sector’s pricing correction, however, may be eased to embrace a soft landing, given that land developers will also have lower borrowing costs after the nation’s central bank cut key rates by 1.625 percentage points in the past three months.

Arling Cho (卓訓麟), chief executive of San Sui Asset Management Corp (山水資產), said that a series of interest rate cuts would entice home buyers although the extent remained unclear.

Nevertheless, the domestic economic slowdown has taken its toll on mortgage borrowers, an increasing number of whom are defaulting on loans.

San Sui’s latest statistics showed that the number of foreclosure properties exceeded 10,000 units last month — much higher than the monthly average of 6,000 in the first three quarters of this year.

Cho said he expected the number of properties to be auctioned to continue to climb with a possible peak in the second quarter of next year as more borrowers fail to repay their mortgages because of job losses and the domestic recession.

Closing prices of to-be-auctioned properties, however, were on the rise after with potential home buyers plunging into the market seeking bargains.

At auctions, the gap between a property’s market price and closing price has been narrowed to 10 percent.

“The margin is so small that property investors are no longer interested in casting bids. Sixty percent to 70 percent of bidders aim at self-use properties,” Cho said.

To-be-auctioned properties are mostly second-tier destinations priced between NT$2 million and NT$6 million, he said.

On top of a low interest-rate environment, the newly launched direct air and shipping links between Taiwan and China are expected to give a boost to the local property market, although not much is happening yet, said Jeffrey Huang (黃增福), an assistant manager at Evertrust Rehouse Co’s (永慶房屋) research and development department.

“The links may provide an incentive for China-based Taiwanese businesspeople to return and shop for homes,” he said.

While low interest rates may entice rental tenants to buy homes, most home buyers are still adopting a wait-and-see attitude, hoping property prices fall further, Huang said.

With property prices declining by more than 10 percent recently, there is still room for prices to be trimmed by a further 10 percent, he said.

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