In the aftermath of the central bank’s unexpected move on Thursday to raise interest rates and adopt targeted credit tightening measures to curb property speculation in northern Taiwan, academics said yesterday that local housing prices were set to undergo a gradual correction.
Chang Chin-oh (張金鶚), a land economics professor at National Chengchi University, said by telephone that this is a clear move to rein in the red-hot real estate market and allow home prices to gradually return to reasonable levels.
“It is time that property speculators exited the market,” Chang said, adding that a low interest rate environment has come to an end, as the interest rates will only see an upward trend from now on.
The monetary regulator laid down new regulations in black and white, requiring the extension of housing loans in Taipei City and 10 other cities in Taipei County not to exceed 70 percent of the value of the collateral and removing grace periods for loan repayments.
Chang noted that although housing bubbles still exist in certain areas, property prices would see a “soft landing” with the market moving from one of greater demand over supply to one of greater supply over demand.
In explaining reasons behind the credit tightening measures, the central bank said on Thursday that a large portion of newly extended mortgage loans had been concentrated in the Taipei metropolitan area, which may “undermine the effectiveness of risk management of banks.”
Hua Ching-chun (花敬群), an associate professor of finance at Hsuan Chuang University, agreed, saying that the central bank’s move will enhance the “soundness of the housing market” and cool down the overheating market.
“Abnormal market behavior will gradually be corrected and housing prices will be adjusted back to the fundamental level,” Hua said by telephone. “But [the credit tightening measures] will not go so far as to bring down the real estate market.”
Hua said that the central bank adopted these measures at the perfect time — ahead of the signing of the government-proposed trade pact with China on Tuesday, indicative of the bank’s determination to curb property speculation that is riding the tide of the cross-strait agreement.
As there is still “too much” liquidity in the market, Chiou Jiunn-rong (邱俊榮), a professor of economics at National Central University, said property speculation will definitely be affected by these measures.
“The central bank wanted to signal that it is capable of controlling soaring house prices,” he said.
However, Chiou noted that the monetary regulator’s move to raise interest rates, though moderate, was chiefly aimed at influencing the public’s expectation that housing prices will go down due to interest rate hikes.
“When everyone expects home prices to drop, the prices are bound to drop,” he said, adding that interest rate hikes are more effective than selective credit controls in containing rising housing prices.
Against this backdrop, Taiwan Realty Co (台灣房屋) analyst Chiu Tai-hsuan (邱太煊) said the central bank’s rate hike would have impact on property prices in Taipei City and Taipei County.
“Property prices in overheated areas of those municipalities [targeted by the central bank] may see a 5 percent to 10 percent decline,” Chiu said.
Since the rate hike is a minor one, property investors will see no immediate pressure to de-leverage, he said.
Meanwhile, Barclays Capital yesterday said in a statement that it expects the central bank to hike its benchmark interest rate again by another 12.5 basis points at it next quarterly board meeting in September.
After September, the central bank will pause and allow market rates to catch up with the policy rate so as not to hike up rates too rapidly, Barclays said.
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