Commercial property transactions decreased further last quarter as life insurers continued to curb trading after the Financial Supervisory Commission raised yield requirements in an attempt to cool the market, CB Richard Ellis Ltd’s (CBRE) local unit said in a report yesterday.
Commercial property deals totaled NT$16.3 billion (US$541.17 million) during the April-to-June period, falling 54 percent from last year’s level and 33.74 percent from the first quarter, the report said.
“Though the commission lifted the purchase restrictions in May, it maintains a strict review on property investments by life insurers,” the US property broker’s Taiwan managing director Joseph Lin (林俊銘) said by telephone.
Despite having sufficient funds, life insurers preferred to maintain a low profile after accounting for a majority of overall transactions in recent years, Lin said.
Mercuries Life Insurance Co (三商美邦人壽保險) was the only exception after it acquired partial floors of two office buildings for NT$1.4 billion that it intends to use as its offices.
Developers and construction companies underpinned the transactions last quarter, after being sidelined over the past few years, Lin said.
The market is likely to remain sluggish unless regulators “become friendly,” Lin said, adding that the weak patch may extend to auctions of superficies rights of state-owned land.
Those plots are limited to development into office, hotel and retail space that require sustained professional management and operations, but developers and construction companies favor one-off deals so they will not be held accountable for the properties they build, Lin said.
Furthermore, the government has failed to introduce supporting development plans for districts housing those land plots, which may end up as unprofitable ventures for the winning bidders, Lin said.
The government has sought to drive insurance funds to public construction projects through the auctions of superficies rights.
While superficies rights require less money, insurers would expect returns of at least 5 percent, compared with the required 2.875 percent minimum for property investments with permanent ownership, Lin said.
“Higher returns dictate lower offers,” he said.
The fragile economic recovery and the US Federal Reserve’s plans to wind down quantitative easing may also weigh on the market, Global Asset Management Co (全球資產), an asset management arm of Sinyi Realty Inc (信義房屋) said.
It remains unclear how the fed’s move will pan out, but investors are likely to adopt a more cautious strategy, Global Asset said.