The central bank decided on Thursday to keep its key interest rates unchanged for a fifth consecutive quarter and did not raise the reserve requirement ratio. Is this a sign that the bank is putting the brakes on its recent moves to rein in speculative investment in the property market? The bank’s press statement that day said no.
The central bank said it decided not to raise interest rates because current rate levels were “appropriate and conducive to sustainable economic growth.” But the bank did see the threat of soaring property prices, saying: “Heightened housing prices and over-concentration of mortgage loans in specific areas in Taiwan have gradually become a source of concern.”
The bank said it had responded with a series of “targeted prudential measures” since last October and pointed a finger at investors who are pouring money into specific areas for “non-residential purposes.”
Based on this statement as well as what central bank Governor Perng Fai-nan (彭淮南) said on Thursday, the bank has refrained from using heavy-handed measures to intervene in the housing market.
The bank’s main objective is still to closely monitor the flow of speculative hot money, even though it did not specify what kind of restrictive measures it would take to combat the money flow. If anything, the bank makes clear that it believes draining excess liquidity in the banking system through its open market operations — such as the issuance of short-term and long-dated certificates of deposit — would likely achieve the same results as raising the reserve requirement ratio to help bring down the level of excess funds flowing to the property market.
Unfortunately, the housing market appeared undaunted by the central bank’s efforts to target rising housing prices in certain areas. On Friday, the Real Estate Marketing Agency Association said property developers planned to launch a record-high NT$290 billion (US$9.1 billion) in pre-sale housing projects in the Taipei, Taichung and Kaohsiung areas, beginning this weekend. Coincidently, construction firm Huaku Development sold one of its office buildings in Neihu Science Park to unspecified foreign investors on Friday for NT$3.56 billion, an amount that is by far the highest in the commercial property market this year.
Of course, there are again political concerns ahead of the year-end special municipality elections. On Wednesday, Premier Wu Den-yih (吳敦義) expressed his reservations about proposed amendments to the House Tax Act (房屋稅條例) at a Cabinet meeting.
Yesterday, Wu responded to reporters’ questions on this matter, saying that the law’s revision would need to take many considerations into account, and that he considered the housing tax a matter for local governments.
Based on the Ministry of Finance’s proposal, the amendments are aimed at changing the current flat housing tax rate for residential units from 1.2 percent to a range of between 1.2 percent and 1.8 percent, as it wants to achieve an equitable taxation system and curb property speculation.
However, experience suggests any government measure to curb property speculation would not have much impact on the real-estate market and the proposed tax rate changes, if approved by the legislature, would only affect about 3.4 percent, or 300,000 households in Taiwan. Wu’s reservations about the amendments, although not an outright rejection, show again the central bank remains alone in battling inflows of hot money and the looming threat of housing bubbles.
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