Sun, Oct 03, 2010 - Page 8 News List

EDITORIAL : Politics trumps fiscal responsibility

As land prices in Taipei County’s Sinjhuang (新莊) set record highs in recent land auctions and housing prices in Taipei City remain elevated, the government faces mounting pressure to show that it is capable of dealing with rampant property speculation, since few believe its efforts so far have proved to be effective.

Aside from the central bank’s small interest rate increases, several credit-tightening measures on housing loans and the ban on sales of state-owned properties in Taipei, there is little sign the government will impose more measures on the domestic real estate market ahead of the special municipality elections on Nov. 27.

The government and the public have a lot to think about after the central bank’s announcement on Thursday of a 0.125 percentage point increase in key interest rates was not accompanied by any additional credit-tightening measures for the housing market.

The rate increase — the second this year — met market expectations, since the nation’s economic fundamentals are strong and still-high property prices in the greater Taipei area warranted further upside in the central bank’s key interest rates to help normalize its monetary policy.

However, market-watchers are left to wonder about the central bank’s decision to forgo any new credit-tightening measures on housing loans in addition to those announced in June, and not to adopt stricter rules for land mortgages.

Even though the latest government data showed on Monday that the nation’s outstanding loans for home purchases reached a record level of NT$5.054 trillion (US$163 billion) in August and loans offered by local lenders to construction companies also surged to a decade-high of NT$1.17 trillion in August, the central bank’s answer on Thursday to the still-hot property market was just to urge lenders to adopt proper rules on land financing and encourage them to strengthen mortgage risk management through moral suasion.

One possible reason the central bank did not announce new measures to target land mortgages, or loans using idle land as collateral, could be that it did not want to take any drastic steps to dampen the housing market and, in turn, hurt the overall economy.

The bank could also be in the process of proposing possible measures on land mortgages and might make them formal policies if the land speculation situation worsens, following similar steps recently taken by its Asian peers. In China, for instance, the government on Monday announced a set of new measures to curb land hoarding by developers, banning them from bidding for more properties if they either have property that has lain idle for more than a year or possess illegally transferred land.

If the central bank does take harsh steps to target rampant land mortgages, many expect it will need support from other government agencies to tackle the problem. The Ministry of Finance set up a mechanism in May that allows it to repurchase auctioned public land greater than 100 ping (330.6m2) in the Taipei area if the plot remains idle for up to three years. Unfortunately, that mechanism is not retroactive for plots of land that were sold before May.

A final possible explanation, perhaps the most accurate one, is the government’s political considerations ahead of the special municipality elections and fear of a backlash from businesses.

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