Mon, Jul 02, 2007 - Page 8 News List

Editorial: Keeping cool about real estate

As overall economic growth stabilizes and inflation remains in check, real estate prices may not tumble overnight despite talk about a bubble ready to burst. Reports released last week, however, did warn that the market could begin slowing down in the third quarter.

First, a quarterly report from the Architecture and Building Research Institute said the market might contract in the near term. The institute, which is under the Ministry of the Interior, said the market may come down as the index of leading property indicators -- which projects market conditions three quarters ahead -- showed its first decline in four quarters.

In addition, 41.6 percent of the major players in the real estate sector -- including construction firms, real estate brokers and financial institutions -- said they were less optimistic about the outlook of the market for the third quarter, while only 13.4 percent expressed optimism, the institute's report said.

Another survey by National Central University's Research Center for Taiwan Economic Development also reinforced a conservative outlook for the market. The center's monthly consumer confidence poll showed that people's willingness to purchase durable goods such as houses and automobiles has remained on a downward trend since last October.

This change indicates that consumers may have decided not to spend money on real estate or any other big-buck items any time soon.

Meanwhile, a market report released by Sinyi Real Estate Inc said 43 percent of homebuyers expected housing prices to continue rising for the second half of the year, yet it showed 40 percent of those polled felt the real estate market has peaked and may see a correction soon.

Several leading land developers and builders have maintained for some time now that the property market would continue to grow in the years ahead because of solid demand and expectations of policy support. But is the demand really real? Who is doing the demanding?

Although there are no official tallies on how much of the demand went to investors and how many homes were sold to residents, there are signs that the real estate market in at least some parts of this country has stagnated or even declined. So how long can this property boom last?

Whether the demand has been driven by investors or home owners, it is impossible for housing prices to continue rising. In fact, low mortgage rates have played a significant role in the nation's sizzling real estate market in the recent two to three years.

But the central bank's continual interest rate hikes, lenders' move to tighten mortgages and the regulators' instruction to mortgage providers to toughen standards for home loans could cool down the market a bit.

However, the dream of home ownership might stay a dream for many would-be buyers over the next few years as mortgage rates are expected to climb. Both home-owners and would-be buyers should think carefully before pouring money into the market now.

As housing will certainly appreciate -- given the scarcity of land in Taiwan -- people should be careful not to become a victim of a collapsed market in the future.

Among others, rising housing inventories, more purchases by investors than by occupants, a widening gap between rental and ownership costs, huge price appreciation in recent years and a slew of negative economic developments like high unemployment are important gauges that people should consider before they decide to enter the real estate market.

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