Property shares have continued to underperform the broader market this year, despite a wave of new projects set to launch during the promotional season starting on March 29.
Speculation is rising that the property boom has reached its peak, following recent reports that several land developers have scrapped plans to sell assets and a failed land auction in Taipei’s Xinyi District (信義) last week.
“Taiwan’s housing market has had a bull run for more than 10 years, but QE [quantitative easing] tapering by the US Fed is likely to bring this to an end. Foreign-capital outflows and rising mortgage rates and yields should all lead to a fall in house prices,” Daiwa Capital Markets said in a report on Monday.
Daiwa said Taipei is likely to be the exception and house prices in the capital should be more inelastic than elsewhere, but property investors are leaving the local market, it said.
“Falling investment demand would put pressure on house prices, but we believe end-users would move in after a 5 percent to 10 percent fall in prices,” Daiwa said.
“Prices should stabilize thereafter, until the pressure from gradual rises in mortgage interest rates is felt in late 2015 or 2016. We expect average house prices to fall gradually by 20 percent to 30 percent between now and 2020,” it said.
Analysts said developers have become cautious about buying land, even in Taipei, as they view land prices as too high and sentiment has been soured by a slew of unfavorable policies and negative comments by government officials about the real-estate market in recent months.
On Tuesday last week, the auction of a prime area of commercial land in Xinyi District, A25, fell through as it did not receive a single bid.
Despite the city government’s attempt to make the sale more attractive after its previous failed auction in August last year by converting the project from a build-operate-transfer (BOT) scheme to land rights development, and reducing the usage period to 50 years from 70 years, investors still balked at bidding for the 5,452 ping (18,0232) plot of land because of its high minimum royalty of NT$24 billion (US$788.5 million).
Macquarie Capital Securities Ltd said the government’s aggressive royalty requests and the land’s restricted use for institutional investors turned off bidders.
The government’s increasingly negative tone on Taiwan’s realty market also contributed to the failed sale, Macquaries said in a note on Monday.
Aside from property investors, equity investors have also shied away from developers and asset plays amid increasing pessimism toward this market.
The building materials and construction sub-index has underperformed the benchmark TAIEX by 6.07 percent since the beginning of the year, Taiwan Stock Exchange data showed.
However, some still think otherwise. As interest rates remain low and abundant excess capital continue to chase investment opportunities, property will still garner interest from potential buyers for years to come, Macquarie said.
“Though the residential home market sentiment also soured, we expect projects by quality developers to remain in favor with wealthy citizens,” Macquarie said.