Sat, Dec 29, 2012 - Page 8 News List

Worst yet to come for real estate

By Chang Chin-oh 張金鶚

There has been a certain amount of wishful thinking of late that, come the new year, the property market will start to emerge from the doldrums. However, is the worst really over? People have perhaps forgotten that during the property slump in the 1990s, more than 200 construction companies went bust, more than 2,000 real-estate brokers closed shop and more than 300,000 families lost their homes through foreclosure. Some sources estimate that the amount of non-performing loans exceeded NT$1.4 trillion (US$48 billion).

The property market sustained a double blow this year, with the introduction of the luxury tax and the resultant fall in housing loans. Transaction volumes fell to a 10-year low — even lower than when SARS dampened investment. The introduction of reporting actual selling prices for property transactions has also revealed a conspicuous decline in property prices, with actual sales going for 10, 20 or even 30 percent less than their purported value. What have been, in the past, very desirable properties — apartments built near MRT stations — have seen their asking prices drop by between 10 and 15 percent, and even then close to half have had no takers.

In other words, following a property boom lasting about eight years — with the exception of the latter half of 2008 through early 2009, when it was hit by market uncertainty caused by the US subprime mortgage crisis — the housing market has been on a downward spiral since the second half of this year, with transaction prices and volumes falling. Real-estate agents are keen to impress upon anyone who will listen that the housing market has already bottomed out and that they expect the coming year will see an improvement in their fortunes, but at the same time they are calling on the government to abolish the luxury tax to relieve the financial friction on the housing market. So what will the next year bring, and what should the government and prospective buyers expect or do?

Several factors support the hypothesis that the housing market will indeed bottom out and bounce back. First, there are signs that the domestic economy is gradually starting to recover, and this will drive demand in the housing market. Second, there is no shortage of foreign or domestic capital, so there is ample cash around to support the market. And third, interest rates remain low, and there is just as much demand for property as before, whether it be for people looking to buy a home or to make an investment.

However, there are also reasons to believe that the housing market dip has just started. The housing market is subject to cyclical growth and contraction, and it has just emerged from eight years of unexpectedly favorable growth: It is only now that the sector has started to contract and to see prices fall. It is very unlikely that the housing market will recover after experiencing only a brief period of decline. There is also the question of supply and demand. While there is no shortage of supply, investor demand has dropped significantly because of the introduction of the luxury tax and a constriction in money supply. People have been holding off on buying houses because of rising prices coupled with stagnating incomes, resulting in a glut of empty properties on the market. Then there is government policy. The luxury tax and the actual selling price reporting policy, as well as announcements of increases in land prices and current value, were all introduced by the government in response to pressure from the public. With these in place, we are unlikely to see conspicuous growth in the housing market in the foreseeable future.

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