The central bank’s new credit controls for luxury homes sent a chill through the real-estate market, with transactions dropping last month from May, snapping four consecutive months of increases and stoking pressure for a price correction.
Although luxury houses account for only a tiny fraction of real-estate transactions, they serve as a guide for property values in the residential market, given the lack of transparency on actual transaction prices.
“Housing transactions are bound to weaken further in the second half of this year, with prices falling as sellers seek to cash out, while buyers prefer to stay on the sidelines,” said Billy Yen (顏炳立), general manager of DTZ, an international property consultancy.
Yen, who was earlier bullish about the market outlook, said he was no longer optimistic after the central bank on June 21 tightened credit controls for upscale homes nationwide.
In its latest bid to curb property speculation, the central bank asked lenders — state-run and private alike — to cap loans for luxury houses at 60 percent of their value and drop the practice of allowing borrowers to only pay interest and delay principal payments for up to several years.
The monetary policymaker defines luxury homes as those valued at more than NT$80 million (US$2.68 million) in the Greater Taipei area and NT$50 million elsewhere in the country.
Housing transactions dropped 6 percent in Taipei City and 6.7 percent in New Taipei City (新北市) to 3,684 units and 6,582 units respectively last month, compared with a month earlier, data from the city governments showed.
Sentiment also turned weaker in central and southern Taiwan, with housing transactions dipping 6.1 percent in Greater Taichung and 15 percent in Greater Tainan. Greater Kaohsiung bucked the trend, with a 4.1 percent increase, thanks to the completion of a new apartment complex.
The figure in Greater Kaohsiung would have slipped, if not for the 800 new apartment units purchased earlier, said Tseng Chin-der (曾敬德), a researcher at Sinyi Realty Inc (信義房屋), the nation’s only listed broker.
To close the loopholes, the central bank also included home renovations and other real estate-linked loans in the 60 percent limit, significantly raising the costs for owning upscale houses.
“The new mortgage restrictions have seriously dampened buying interest in luxury homes,” Yen said. “Previously, a product [house] attracted on average three prospective buyers. Now, the number has dropped to zero in some cases.”
Luxury home purchases now require double capital, prompting potential buyers and investors to reconsider the wisdom of parking their funds in real estate, especially as the special sales levy makes capital gains unlikely, Yen said.
Productivity Architect Co (生產力建設), a Greater Taichung-based developer, called off plans to auction four luxury housing units late last month to avoid drawing the central bank’s attention, he said.
Yen expects tighter lending terms to induce a price correction for luxury houses in less popular locations as stressed owners, especially of pre-sale projects, are under pressure to exit or bear far higher holding costs.
The existing home market is also expected to see an increase in supply ahead of the implementation of a regulation requiring sellers to register actual transaction prices beginning Aug. 1.
The new rule aims to minimize the chances of developers and contractors setting unreasonable prices and may pave the way for tax reform, with property taxes being based on actual transaction prices instead of lower government-assessed values.
Sellers, who gained an upper hand last quarter, may soften prices to cope with lower loan-to-value ratios, said Chuang Meng-han (莊孟翰), an industrial economics professor at Tamkang University.
However, prospective buyers are likely to wait and see until these changes are assimilated into the market, Chuang said, adding that this would affect transactions.
Chuang said he expected housing prices to fall by 5 to 10 percent in the capital and by 15 to 20 percent in New Taipei City, with the trend more evident in areas with large housing supplies.
“It is better for buyers to be patient and to compare prices before making a decision,” he said.
The weakening sentiment is projected to depress housing transactions by 10 to 15 percent in the coming two quarters, said Andy Huang (黃舒衛), spokesman for Evertrust Rehouse Co (永慶房屋), the nation’s largest real-estate broker by number of outlets.
The restrictions on home renovation loans and second-home financing have added to the difficulties, as they have cut access to capital for people who plan to buy a second house by mortgaging their first home, he said.
Higher down payment requirements will also slow growth from replacement demand, as most people will have to sell their existing homes to obtain enough funds to buy a new one, Huang said.
UNCERTAINTY: Investors remain worried that trade negotiations with Washington could go poorly, given Trump’s inconsistency on tariffs in his second term, experts said The consumer confidence index this month fell for a ninth consecutive month to its lowest level in 13 months, as global trade uncertainties and tariff risks cloud Taiwan’s economic outlook, a survey released yesterday by National Central University found. The biggest decline came from the timing for stock investments, which plunged 11.82 points to 26.82, underscoring bleak investor confidence, it said. “Although the TAIEX reclaimed the 21,000-point mark after the US and China agreed to bury the hatchet for 90 days, investors remain worried that the situation would turn sour later,” said Dachrahn Wu (吳大任), director of the university’s Research Center for
Alchip Technologies Ltd (世芯), an application-specific integrated circuit (ASIC) designer specializing in artificial-intelligence (AI) chips, yesterday said that small-volume production of 3-nanometer (nm) chips for a key customer is on track to start by the end of this year, dismissing speculation about delays in producing advanced chips. As Alchip is transitioning from 7-nanometer and 5-nanometer process technology to 3 nanometers, investors and shareholders have been closely monitoring whether the company is navigating through such transition smoothly. “We are proceeding well in [building] this generation [of chips]. It appears to me that no revision will be required. We have achieved success in designing
PROJECTION: KGI Financial said that based on its foreign exchange exposure, a NT$0.1 increase in the New Taiwan dollar would negatively impact it by about NT$1.7 billion KGI Financial Holding Co (凱基金控) yesterday said its life insurance arm has increased hedging and adopted other moves to curb the impact of the local currency’s appreciation on its profitability. “It is difficult to accurately depict the hedging costs, which might vary from 7 percent to 40 percent in a single day,” KGI Life Insurance Co (凱基人壽) told an investors’ conference in Taipei. KGI Life, which underpinned 66 percent of the group’s total net income last year, has elevated hedging to 55 to 60 percent, while using a basket of currencies to manage currency volatility, the insurer said. As different
Taiwanese insurers are facing difficult questions about the damage of recent swings in the New Taiwan dollar. Regulators might have a partial solution: letting firms change how they calculate the value of foreign currency assets. The Financial Supervisory Commission (FSC) is considering allowing insurers to use six-month average exchange rates when they calculate risk-based capital in their semiannual reports, a shift from the current system where insurers use exchange rates on the final day of reporting. The change could ease pressure on the US$1.2 trillion insurance sector, whose huge exposure to foreign assets came into the spotlight earlier this month after a
RSS