Editorial: Get ready for housing market to slow

As private investment and consumption recover, exports are increasing steadily and employment is stabilizing. The nation's economy should have ample reason to grow.

But lagging consumer confidence and the banks' move to tighten mortgages could lead to sluggishness in the residential housing market in coming months.

Statistics and surveys released by research institutes have shown that a housing market slowdown is beginning to take shape. The government, consumers and related business sectors need to watch closely and prepare.

First, the central bank's latest monthly data on house-purchasing loans by consumers showed a slower increase in August. The amount rose NT$21.14 billion (US$645 million) month-on-month to NT$4.6 trillion in August, after growing by NT$28.27 billion in July, NT$26.21 billion in June and NT$49.63 billion in May, bank tallies showed.

Taking a closer look at banks' mortgage lending, we see that the top five banks in August posted an 18-month low in new housing loans at NT$35.07 billion, which was the third straight monthly decline and the lowest since February of last year, according to the central bank's data.

In addition, a quarterly report from the Architecture and Building Research Institute said the market has shown signs of a slowdown in construction. The institute, which is under the Ministry of the Interior, said the monitoring indicators for the housing market had flashed a yellow-blue light in the second quarter after six consecutive quarters of green light, indicating that the market was on the brink of slowing down following years of bullish development.

A survey conducted in July by the Institute for Physical Planning and Information also reinforced a conservative outlook for the market. The survey, commissioned by the Council for Economic Planning and Development, said market sentiment had turned sour in the second quarter, with home buyers expressing concern over the heavy burden of house purchases in the face of rising prices.

Still, there's a huge divergence in sentiment in the residential housing market between the construction firms and the home buyers and lenders. According to the central bank's data, local construction companies borrowed NT$980.77 billion from banks in August, representing an increase of NT$23.34 billion from the previous month and the largest monthly increase over the last year.

Construction firms are certainly still upbeat about the residential housing market mainly because they expect policy support, such as the preferential rate on taxes for increased land value for homeowners and the continued urban zoning momentum by the government.

To ignore bleak consumer sentiment and credit tightening by the banks is dangerous, but the real question is: Is the bubble about to burst?

It appears not. With the price of raw building materials consistently high, it looks as though more home buyers will probably exit from the market. Housing prices do not seem poised to deflate quickly and crash the market any time soon.

As the threat of inflation remains a concern for the central bank -- which raised its benchmark interest rates last month, -- it does have leeway for further hikes in December. Higher borrowing costs will add more burden to borrowers, while moves to toughen standards for home loans will also increase the downward pressure on the housing market.

With that in mind, we need to take a hard look at the residential housing market and make sure that these weakening signs do not spill over and curb consumer spending in other areas, affecting the economy as a whole.