Mon, Nov 19, 2007 - Page 8 News List

EDITORIAL: Cast a wary eye on property boost

The Cabinet recently announced several measures designed to boost the property sector and speed up urban renewal.

On Nov. 7 it announced that height limits for buildings within a 3km radius of Songshan Airport would be increased from 60m to 90m, affecting nearly 1,200 hectares of land, an industry estimate said.

On Wednesday, it approved a proposal to raise the plot ratio, or floor area ratio, for certain urban renewal projects areas.

Government officials said the new measures -- moves seen as the most positive news for the construction industry in 25 years -- would attract NT$1 trillion (US$31 billion) in domestic investment to 200 urban renewal projects over the next five years.

To show its determination to accelerate urban renewal, the Cabinet also came up with a plan to create a national urban redevelopment agency with a minimum capitalization of NT$5 billion that would fund and encourage urban renewal investments.

Although the Cabinet stressed the relaxation of construction measures was to help beautify the nation's urban landscapes and offer a boost to the property sector, critics saw the announcements as a tactic to benefit the Democratic Progressive Party (DPP) ahead of legislative and presidential elections.

The DPP government has unveiled property development policies in past election years. The tactics appear to have worked as statistics compiled by Citi Investment Research suggested that property stocks had, on average, gone up 71 percent around election time in 2000 and 2004. On those occasions, the government either announced measures preparing for Chinese capital in the domestic property market or made moves to ease restrictions on cross-strait transportation links.

Investors may again welcome the latest policy announcements and want to increase their bets on the property shares, especially those who own parcels of land near the planned urban renewal areas.

But investors should be cautious about these bullish announcements unless they see real action taken to push the new policies forward. Otherwise, they will only see the surge recede soon after the elections.

Regardless of whether there will be a pre-election property surge this time, investors should be concerned about how the government can make ends meet and how the property market will respond to the new policies.

Industry watchers have already warned of a possible over-supply problem as a result of the new measures. In their opinion, as developers are likely to obtain additional land space at a relatively lower cost because of the relaxed measures, there is likely to be a significant increase in the supply of new houses, particularly in locations where residential space is limited, such as Taipei City or Banciao in Taipei County.

The question is: Will the demand emerge to absorb the new supply? More importantly, where will the demand come from? Will it come from owners who are already suffering from increasingly high prices, or property investors who have become less optimistic about returns?

If the Cabinet truly wants to boost the property market and make our cities more attractive, rather than just playing a political game of smoke and mirrors, it should reinforce public infrastructure in the planned urban renewal areas to attract interest from private developers in the projects.

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