Housing prices in Taipei City were overvalued by 43 percent in the first quarter of this year, up from 27 percent recorded in the same period of last year, the latest report by the Taipei-based Taiwan Real Estate Research Center (TRERC) showed.
The average floor price of pre-sale houses stood at NT$638,400 (US$19,795) per ping (3.306 m²) in the first quarter, posting a 73 percent growth over the past five years. This compares with only a slight increase of 1.2 percent in household incomes over the years, the report said.
“This indicated an unreasonable phenomenon that salary growth is a far cry from hikes in housing prices,” TRERC said in the report, noting that the real rental rate also failed to keep pace with the surge in property prices.
Citing past experiences where housing prices were overvalued by between 55 percent and 58 percent in the fourth quarter of 1989, the center said that pre-sale prices stood around NT$470,000 per ping at the time right before a property bubble burst.
“Unless household income or rental prices in Taipei City surge, it is inevitable that the housing bubble [that the nation is experiencing now] will burst,” the report said.
This result matches with a report on real estate bubbles released last month by National Chengchi University economics professor Steve Lin (林祖嘉), which found that the nation’s property bubble continued to expand, although price growth could be limited in the long term given stagnant income growth.
However, the TRERC said that the central bank’s recent hike, albeit marginal, in its key interest rates and targeted measures aimed at putting housing prices in check had sent a warning signal to property speculators.
These measures would certainly cool down the red-hot real estate market by a certain amount, but it is worth observing whether interest rates will increase further in the future and whether selective credit controls will expand to regulate construction companies, the center said.
“Past experience has showed that the most effective way to curb rising housing prices is through monetary policy,” the TRERC said, adding that any further credit tightening by the central bank will have a bigger impact on the property market.
Meanwhile, sales of residential apartments in Taiwan fell for the second consecutive month last month after the central bank unexpectedly raised interest rates and told lenders to cap loans, the nation’s biggest property broker said.
Monthly unit transactions declined 10 percent last month from May. There was a 5 percent fall from April to May. Last month was the first consecutive monthly drop since the financial crisis began in September 2008, Lee Jain-ming (李健銘), a researcher at Sinyi Realty Co (信義房屋), said in a telephone interview yesterday.
The central bank on Friday last week unexpectedly raised its benchmark interest rate to 1.375 percent from a record low 1.25 percent for the first time since 2008. It ordered lenders to cap home loans to buyers who already have a mortgage in the metropolitan Taipei area at 70 percent of a property’s value, stepping up efforts to curb speculation.
Central bank governor Perng Fai-nan (彭淮南) said in March that Taiwan’s property prices are high in three major metropolitan areas and pledged to impose “prudent” measures on property lending to prevent the emergence of asset bubbles.
“What the governor did back in March was moral persuasion, but what he did in June was a rule,” Lee said. “When it becomes a rule, it will be effective.”
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