Integrated circuit designer Ali Corp (揚智) and Cathay United Bank (國泰世華銀) yesterday put a stop to plans to auction off office space in Taipei next month as new commercial property investment restrictions chill the market.
Ali previously said it aimed to sell floors of its headquarters building near MRT Neihu Station next Friday and Cathay Bank had planned to make a profit on a three-year-old building in the same district on Dec 5, according to auction organizer Savills Taiwan Ltd (第一太平戴維斯).
“Major property transactions are likely to come to a standstill for the rest of the year as prospective buyers and sellers need some time to adjust their investment strategy” after the Financial Supervisory Commission on Monday raised the minimum rental yield to 2.875 percent, from 2.125 percent, for domestic life insurance companies, Savills Taiwan managing director Cynthia Chu (朱幸兒) said by telephone yesterday.
The tightening measure is intended to curb commercial property price increases caused by fierce competition among life insurers to park idle funds, Chu said.
The technology firm set a floor price of NT$1.8 billion (US$61.68 million) and the bank of NT$3.39 billion, allowing buyers a rental yield of 2.6 percent and 2.5 percent respectively, according to auction data.
The new yield requirement means that owners will have to cut prices in order to attract buyers from the insurance industry, which has become the major player in recent years as market volatility limits investment options, Chu said.
“Neither Ali nor Cathay United Bank is willing to budge after pricing their properties at lower than market rates,” Chu said.
Office buildings cost NT$600,000 to NT$650,000 per ping (3.3m2) in Neihu, higher than NT$530,000 per ping for the Ali Corp property and NT$450,000 per ping for Cathay United Bank’s building, she said.
The 2.875 percent test suggests a price discount of 20 percent to 25 percent that will freeze the market in the foreseeable future, Chu said.
Lee Chang-ken (李長庚), president of Cathay Financial Holding Co (國泰金), parent of Cathay United Bank, said the lender had planned to use the proceeds from the property sale to meet stiffer provision requirements and would now fund the costs from its profits over the next two years.
Cathay United Bank needs NT$1.9 billion to raise its bad loan reserve to 1 percent of Tier 1 lending, a sum that will not drastically weaken the bank’s earnings, Lee said.
“We will not lower the building’s price, but will wait for a better time to dispose of it,” Lee said.
“There are buyers other than life insurance companies,” Lee added.
However, Shin Kong Life Insurance Co (新光人壽), which plans to sell an office building in Neihu on Dec. 3, said yesterday it intends to press ahead with the auction.
The building, priced at NT$4.59 billion, may generate a rental income of 2.14 percent and bring in more than NT$1 billion in profit for the insurer, Shin Kong Financial senior vice president Sunny Hsu (徐舜鋆) said.
Non-life insurance firms are not subject to the 2.875 percent test and some have voiced an interest, Hsu said, declining to supply further details.