No slowdown expected in property investment: experts

HIGHLY RATED::The central bank keeping policy rates unchanged and plans to revise the luxury tax are spurring almost US$5bn in real-estate development, an analyst said

By Kevin Chen  /  Staff reporter

Mon, Jul 01, 2013 - Page 14

Investment among nation’s real estate developers is unlikely to show any slowing in the second half of the year, after the central bank last week kept its policy interest rates unchanged and did not introduce new credit control measures for the housing market, Capital Investment Management Co (群益投顧) said.

However, the long-term outlook for the property market depends largely on government policies, including the planned revisions to the luxury tax on houses, and the scope of the central bank’s potential rate adjustments — if there are any — in the near future, Capital Investment analyst Regina Lee (李佳桂) said in a note to clients on Friday.

“Long-term demand in the residential housing market is subject to decline, which is a reflection of the nation’s aging population and the increasingly fewer amount of children being born each year,” Lee said.

“Despite this, short-term investment needs remain strong because interest rates remain relatively low,” she added.


Her remarks came after the central bank at its quarterly board meeting on Thursday last week opted to keep benchmark interest rates unchanged for the eighth consecutive quarter.

The bank maintained the discount rate at 1.875 percent, the collateralized loan rate at 2.25 percent and the unsecured loan rate at 4.125 percent.

The bank also maintained current credit control measures on real-estate lending, saying that its measures have effectively pushed down the average loan-to-value ratio in certain areas to 57 percent from levels as high as 70 percent two years ago, with the average mortgage rate reaching 2 percent.

Since most lenders have formulated internal rules and procedures in this regard, such as raising mortgage rates, lowering loan-to-value ratios and removing grace periods, the central bank will continue to keep a close watch on lenders’ approach to risk management for real-estate lending, according to the bank’s press release.


Lee said that explained why developers are expected to launch NT$130.9 billion (US$4.37 billion) worth of new property projects in the north of the country this month, which is an increase of 35.7 percent from the same period last year, she added, citing the latest survey conducted by the Chinese-language Housing Monthly (住展雜誌).

Taoyuan County is set to lead major metropolitan areas with NT$44 billion of new projects this month, followed by New Taipei City’s (新北市) NT$40.4 billion, Taipei’s NT$7.8 billion and Hsinchu City’s NT$6.5 billion, according to the magazine.

Based on the central bank’s latest data released last week, housing loans extended by the five major mortgage providers in May declined 22.87 percent year-on-year to NT$42.75 billion and their average mortgage rate rose to 1.986 percent, the highest since February 2009.

In the first five months of the year, housing loans extended by Bank of Taiwan (台灣銀行), Land Bank of Taiwan (土地銀行), Taiwan Cooperative Bank (合作金庫銀行), Hua Nan Commercial Bank (華南銀行) and First Commercial Bank (第一銀行) totaled NT$194.77 billion, down 12.15 percent from a year ago and the lowest level seen in the past five years.

During the same period, the average mortgage rate reached 1.959 percent, higher than the 1.89 percent recorde in the same period last year.

“However, mortgage rates are still at historically low levels. Only when mortgage rates rise to between 3 percent and 4 percent will they start to have a material impact on the property market,” Lee said.

However, it is likely take a couple of years to see mortgage rates climb to those levels, she said.


Meanwhile, UBS Securities analyst Ally Chen (陳玟瑾) said mortgage rates in Taiwan are primarily tied to short-term rates, which are unlikely to be raised for the remainder of the year due to a slow economic recovery.

In addition, a draft proposal for the revision of the luxury tax on the property market is still being formulated by the government, meaning that the earliest changes to the tax could be sent for legislative review would be the fourth quarter of the year, Chen said.

Under the luxury tax, the government imposed a 15 percent tax on properties resold within one year of purchase and a 10 percent tax on those resold within two years of purchase

“Selective tighter credit control remains the government’s major policy aim for the property market,” she said in a report on Wednesday.