Recent data indicating a weakening housing market and slowing capital repatriation from China suggest the end of an eight-year bull run in the local housing market is near, Citigroup said in its latest research.
The report, released on Sunday under the title The Party is Over, said the local housing market has seen prices surge by more than 100 percent in some areas over the past eight years thanks to the nation’s low interest rates, limited land supply, continued money repatriation, increased foreign capital inflows and expectations of Chinese investment on better cross-strait ties.
However, the bull market may be ready for a pause, according to the report.
Dave Chiou (邱義昇), a Citigroup analyst and author of the report, said government policies such as a special sales levy of 10 to 15 percent of the transaction price, a policy also known as the luxury tax, and other credit tightening measures are now starting to have a negative impact on the market.
Moreover, a drop in money repatriation from China has brought about more downside risks on Taiwan’s property sector in the medium term, he said in the report.
The Citigroup report came as the latest data from the Ministry of the Interior on Friday showed that the nation’s housing transactions totaled 26,992 units in August, the lowest level in 30 months, after falling 4.66 percent from July and down 7.74 percent from a year earlier.
The ministry said in a statement that the August transactions — measured by the registration of building ownership transfers — had fallen for a third straight month since the government’s implementation of the luxury tax on June 1.
Regional breakdowns also -indicated that August transactions in Taipei City, New Taipei City (新北市), Greater Kaohsiung and Greater Taichung had all dropped to their lowest levels in about 30 months.
Further dimming the market’s mood is a fall of between 2 percent and 6 percent in the price of presale housing in the Taipei area since July, Citigroup said, citing its checks with industry sources.
Chiou attributed the declining presale property prices to the fact that many Taiwanese businesspeople in China have substantially slowed their money repatriation during the first half of the year because of China’s credit tightening measures.
“We believe the money repatriation story has ended, a key reason why we are becoming negative on the sector,” he wrote.
Looking ahead, Chiou said house transactions were expected to fall for a fourth straight month last month by 10 percent month-on-month, as uncertainty about the January presidential election will continue curbing speculative buying.
Residential prices in Taipei City may drop by about 5 percent over the next 6 months and a decline of 5 percent to 10 percent is likely for those in New Taipei City, he forecast.
While the results of the January elections would determine the market’s outlook for next year, there would be no pre-election rally in property stocks as there was before the previous two elections, Chiou said.
The building material and construction sub-index, which reflects the general share performance of property stocks, grew 108 percent in 2004, versus the TAIEX’s 21 percent gain that year, and in 2008 the sub-index rose 65 percent compared with the TAIEX’s 7 percent increase, according to Taiwan Stock Exchange data.
So far this year, the sub-index has plunged 30.86 percent, underperforming the TAIEX’s 21.83 decline, the exchange’s data showed.
“Given the current macro-economic conditions, the government’s policies of cooling the property market and uncertainty about the presidential elections, we believe a pre-election rally is unlikely this time,” Chiou wrote.