Sat, May 19, 2012 - Page 11 News List

Real-estate prices climb despite inflation concerns

BRICKS AND MORTAR:Real estate continues to appeal to buyers who are attracted by the prospect of further rises on the back of capital investment from China

By Crystal Hsu  /  Staff Reporter

Inflation and construction costs have limited impact on Taiwan’s soaring housing prices, which are more affected by real demand and investment needs, analysts said in a forum yesterday.

The nation’s consumer prices have remained relatively stable in recent years, but housing prices, especially in metropolitan areas, have increased by double digits, said Chang Chin-oh (張金鶚), a land economics professor at National Chengchi University.

Chang said the trend is not cost-driven as construction costs, which account for 30 percent of sales prices, have only risen by about 10 percent.

House prices have advanced faster in the past years on expectations they may climb higher, buoyed by inflows of Chinese capital as Taiwan improves ties with China, Chang said.

So far, the market has seen very limited funds from China, but house prices have benefited from a self-fulfilling prophecy and are holding firm, despite the government’s measures to trigger a correction, Chang said.

The academic voiced a widely-held concern that expectations of further consumer price hikes — following steep increases to fuel and electricity costs — may push up house prices, with developers and construction firms painting real estate as the best defense against inflation.

Real estate does generate better returns than equities, precious metals and other investment tools over the years, said Alpha Cho (卓輝華), a land valuation expert.

House prices have consistently been on the rise over the past four decades, surging three and four times in some downtown areas of Taipei, regardless of inflationary readings, Cho said.

The trend shows inflation has little impact on house prices, in contrast with a popular belief that higher consumer prices constrain real-estate purchases because people have to spend more on food and other things, Cho said.

A general desire among Taiwanese to own a house, rather than rent one, helps to boost house prices and keep rental rates stagnant, he said.

However, Cho called attention to the growing number of unoccupied houses — last year hitting 1.56 million units nationwide — and said these are set to increase rather than drop in the future because of declining affordability.

Cheng Cheng-mount (鄭貞茂), an economist at Citibank, said a property tax reform to raise holding costs would help, but the government must handle the issue with maximum caution given the potential fallout.

Property tax increases would draw more resistance than the proposed tax on gains from securities transactions as self-use drives 70 percent of property transactions, Cheng said.

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