Editorial: Deflated balloon not always bad

Reports an academic was recently warned to keep his mouth shut after repeatedly talking about a downside risk to the local property market is cause for concern. Respecting the right of people to hold and express views other than our own is a hard-won right in this country.

But what makes Chang Chin-oh (張金鶚), a professor of land economics at National Chengchi University, so unusual is that last week he ignored the warning and released a research report on Thursday that warned of an emerging bubble in Taiwan’s property market, a view that was immediately and harshly rejected by many local construction companies and developers.

Chang his colleagues concluded that 38 percent of Taipei property prices were overestimated in the first quarter of the year. Their study also showed that housing prices have surged nearly 50 percent over the past three years in Taipei, while household incomes have grown by just 2 percent over the same period and rental growth has increased by just 1.5 percent.

Chang be praised for his courage and the public should heed his warning that property prices need to return to reasonable levels. He also said there would be an oversupply problem in the residential sector as many new houses are expected to enter the market soon. However, it remains to be seen whether the caution about a property bubble was a demonstration of theoretical practices or a self-fulfilling prophecy.

What clear is since the second half of last year, several market watchers have noted that the market has an oversupply problem and the current boom appears to be approaching its end. What is not known yet is whether the boom in the limited-scale, luxury housing sector will spill over into the mass-market residential sector.

Yet, making the situation more complicated are the forces of irrational factors and capital inflows, which can be seen on the back of widespread anticipation of closer cross-strait economic ties after the Chinese Nationalist Party (KMT) won both the legislative and presidential elections this year.

Like Democratic Progressive Party government, the incoming KMT administration has welcomed a booming property market to kick-start its economic blueprint. What is different is that the outgoing government used preferential interest rates and taxes to support the market, while the incoming government will be banking on Chinese capital.

But a sound property market should be one that has a large number of people who can afford to buy houses, not just a few rich people bargaining for luxury residences.

The debate over the property bubble is likely to continue for some time. Most home buyers should welcome the bursting of the property bubble because that will mean cheaper housing prices. But most middle-income families still won’t be able to afford to buy if the growth in annual disposal income remains as slow as it has in the past few years. In Taipei, for example, the average housing prices are estimated at 10.5 times the amount of average annual household incomes, which is higher than the level found in nearby cities such as Hong Kong, Seoul and Tokyo.

Bubble not, the government needs to pay attention to the implications of its efforts to boost the market in the past years, particularly an oversupply of residential houses amid a slower growth in household incomes and a worsening income inequality in the country.