The commercial property market is likely to remain sluggish in the coming months as tightened investment thresholds continue to sideline life insurance companies which accounted for more than 60 percent of deals last year, analysts said yesterday.
Commercial property transactions totaled NT$106.9 billion (US$3.68 billion) last year, down 16 percent from NT$129.3 billion in 2011, as major players pulled out after the Financial Supervisory Commission (FSC) in November raised the minimum rental yield on real-estate investments by life insurers from 2.125 percent to 2.875 percent, according to Colliers International Taiwan Ltd (高力國際).
Trading volume dropped 57 percent quarter-on-quarter to NT$22 billion during the October-toDecember period, or down 42 percent from a year earlier, the statistics showed.
Billy Yen (顏炳立), general manager of DTZ (戴德梁行), the nation’s largest international property consultancy by market share, said he expects the soft patch to extend through the first half as the commission has advised life insurers to refrain from aggressive real-estate investments.
Insurance companies spent NT$66.13 billion acquiring commercial properties last year, making them the largest buyer with 61.85 percent of total transactions, way ahead of developers and construction firms with a 13.67 percent stake at NT$8.41 billion, Colliers International said.
“The [commercial property] market has come to a standstill after the introduction of the 2.875 percent requirement that in essence calls for a price drop of 25 percent,” Yen said. “That is unlikely to happen as property owners would rather stay put.”
Yen said that properties in popular locations have difficulty even meeting the previous requirement of 2.125 percent, given soaring property prices and stagnant rental rates in recent years.
Andrew Liu (劉學龍), managing director of Colliers International, said that the 2.875 percent test would strain the local market and drive property funds outside of Greater Taipei and overseas.
Life insurers have pressed for greater exposure to China, from the current 10 percent to 20 percent of overall foreign investments, in the hope that they can increase real-estate investments in first-tier Chinese cities to boost earnings.
The commission has promised to give favorable consideration as long as the proposed regulatory easing would not compromise the sector’s financial health and accountability.
While the stricter investment rule is curbing buying interest among life insurers, it may allow local developers and foreign institutional investors more room to maneuver.
Cynthia Chu (朱幸兒), general manager of Savills Taiwan, said more than NT$20 billion worth of foreign funds are interested in local commercial properties.
Meanwhile, developers and construction firms will build land stock in order to maintain stable profitability, Chu said.
Limited supply meant land deals were unaffected by tightening measures last year, with transactions, including leaseholds approaching NT$193.3 billion — the second-highest level in history.
Leaseholds are likely to gain popularity in the future, especially for plots along high-speed rail stations as evidenced by drastic price hikes in Taoyuan and Hsinchu, analysts said.