Taiwan’s property funds may flow to the superfices market and overseas as domestic life insurance companies remain flush with cash, but are temporarily restricted from real-estate investments at home, international property consultancy Jones Lang LaSalle said yesterday.
“With the economy stabilizing and interest rates steadily low, property funds will settle for what is available in the market,” Jones Lang LaSalle managing director Tony Chao (趙正義) told a media briefing.
The nation’s nine largest life insurers alone have about NT$2.7 trillion (U$92.7 billion) in extra funds for real-estate investments, but since November last year have been told by the Financial Supervisory Commission (FSC) to show restraint in investing to help calm rising commercial property prices.
To ensure compliance, the regulator raised the minimum rental yield for insurers to 2.875 percent, as well as restricting them from reselling undeveloped land within 10 years of purchase and existing commercial properties within five years.
However, the measures do not apply to superficies rights because the government encourages private funds to join public development projects and plans to auction superficies rights for plots of land across the nation totaling about 52,000 ping (171,600m2).
State-owned Taiwan Tobacco and Liquor Corp (台灣菸酒公司) is slated to auction a 50-year lease for developing a 727.07-ping plot near Banciao MRT Station on Jan. 25 and the Ministry of Finance is scheduled to sell a 70-year lease to develop a residential plot near the Jinmei MRT Station.
The government is also seeking private partners to redevelop idle properties, including parking lots in Taipei’s Xinyi District, commercial plots near Taipei International Airport (Songshan) and the former Taipei City Council building.
“Despite the lack of permanent ownership, several insurers have voiced interest in the redevelopment projects due to their convenient locations,” Chao said.
Insurers may also be inclined to park funds in real-estate abroad to lower funding costs, he added.
Their exit may see domestic commercial property transactions plunge by 50 percent this year from NT$117 billion last year, unless the commission lifts the ban.
“Commercial property prices may drop by between 5 percent and 10 percent to facilitate trading, despite most property owners having deep pockets,” Chao said.
The rental market may fare better this year, with rental rates expected to climb from 2 percent to 5 percent on the back of the nation’s mild economic recovery, Jones Lang LaSalle marketing director Joe Lin (林大喬) said.
Vacancy rates may edge up this year from 10.27 percent at the end of last quarter, with new vacancies estimated at 49,000 ping — mainly in Xinyi District — set to join the market, Lin added.
Farglory Life Insurance Co (遠雄人壽), a member of the Farglory Group (遠雄企業團), is charging between NT$3,000 and NT$4,000 per ping for space in its new headquarters near Taipei City Hall, compared with the district’s average rate of NT$2,703, Lin said.
“That will push up overall rent rates in spite of the expected higher vacancy rates,” Lin said. “The improving business sentiment is also expected to lend a helping hand.”