The March 22 presidential election is over and it’s back to the nation’s economic fundamentals. Consumer prices are still rising, the NT dollar remains strong and the stock market, which rose the day following the election, has been falling as investors worry about global financial turmoil and poor corporate earnings in the first quarter.
But unlike other industry groups listed on the main bourse, the nation’s building materials and construction companies’ sub-index has risen 6.77 percent since the election, making the sector the best performer on the TAIEX. So far this year the sector’s share prices have surged an average 48.66 percent, outperforming the 1.06 percent increase on the TAIEX during the same period.
The euphoria appeared to gain more momentum following president-elect Ma Ying-jeou’s (馬英九) victory on speculation that the new administration would move quickly to improve relations with China and ease investment restrictions on real estate purchases by Chinese investors within six months of taking office.
The real estate sector will certainly benefit from the reduced political uncertainty in the country, because people are less likely to purchase or renovate a property when the political outlook is uncertain. It is therefore no surprise that many investors are now paying attention to the real estate sector in a bid to strengthen their portfolios, especially as the outlook for the technology and finance sectors is unclear.
But a more indepth look at the real estate market shows that recent price rises have been bolstered by buyers of luxury homes, as real estate agents say they have observed a noticeable increase in the number of returning Taiwanese businesspeople buying houses or apartments in major metropolitan areas, especially in Taipei.
While experts have different opinions about how strong the boom in the local property market is, with bad economic news such as higher interest rates, lower numbers of mortgage applications and a potential oversupply, they do agree that the current bull market has been created by investor optimism and does not reflect the fundamentals.
There is also a concern that the expected capital inflow from across the Taiwan Strait will generate a property bubble that will eventually pop. Will the younger generation and the middle classes be hurt by this policy relaxation as house prices skyrocket? Will the general public, rather than rich businesspeople, be able to afford homes in the future?
It is not a good thing that a real estate sector boom reflects only the supply and demand in luxury houses. It is also harmful that the price rises seen in these high-end properties have a direct influence on the price of an average house.
But it is good to hear Ma has paid attention to this matter, when he said last Friday that he would take measures to curb speculative Chinese capital from disrupting the local real estate market. In an interview with the Central News Agency, Ma suggested the new administration might forbid Chinese investors from reselling local property until five years after the original purchase.
The question is how and if the new administration can implement policies that effectively restrain speculation from overseas investors attempting to make quick gains on land or real estate transactions, at a time when the public will be keeping a close eye on how Ma can deliver on his promise to facilitate cross-strait trade while boosting the economy.