Real estate prices expected to fall

The nation's moribund real estate market may get a painful but necessary shot in the arm when property prices tumble as the financial sector sheds bad loan collateral, market watchers say.

"Large-scale auctions of properties by [asset management companies] may trigger discounts as high as 40 to 50 percent," said Andrew Liu (劉學龍), general manager of CB Richard Ellis, an international property consulting company.

With an enormous market glut -- 1.25 million vacant residential units nationwide -- and more than NT$500 billion in bad real estate debt, current market prices are not expected to hold.

"Overlending on real estate ventures is a key reason why the government is keen to bring in AMCs to resolve the bad debt issue," Liu said. AMCs are charged with the difficult task of selling off the assets of insolvent financial institutions.

But while the Ministry of Finance works overtime setting up the AMC mechanism and drafting regulations to help banks shed bad real estate debt, the news may be too little too late for prospective home buyers.

"Approximately 84 percent of the adult population already own their own homes," Liu said.

Meanwhile current property owners may be the most affected by the poor lending habits of the past as property prices decline to new lows.

"Based on [similar] experiences in Korea and Thailand, we believe the AMC mechanism will have a negative effect on the market price of second-hand real estate products," said Borling Hwang (黃柏鈴), managing director at international property consulting firm Colliers Jardine.

But the nation's finance chief sought to paint a different picture, saying the fallout will be limited.

"Auctioning of bad loan collateral by AMCs is not expected to have a large impact on real estate market prices," said Minister of Finance Yen Ching-chang (顏慶章) in a written statement to the Taipei Times.

Of the roughly NT$1 trillion in bad banking industry loans, more than 53.9 percent, or NT$520 billion (US$16.25 billion), is in bad loan real estate collateral. The quality of these properties varies enormously. And AMCs, looking to make a fast buck off of the high risk ventures, will need the time to make properties more attractive to prospective investors.

"It will take at least a year before these properties will move from banks to [AMC] portfolios, as they will first need to make them more commercially viable," Liu said.

Most of the properties are in the rural parts of central and southern Taiwan. According to Hwang, foreign investors may swoop in to join the feeding frenzy -- if the price is right. "Foreign investment groups will be very interested in taking part if prices are attractive enough," Hwang said.

And while a nose dive in real estate prices may be a bitter pill for banks and property owners to swallow, pundits say the current market status leaves them few options.

"You rescue the local real estate market not by holding on to artificially [high] prices, but by pushing prices down and encouraging transactions," said Benny Hu ( 胡定吾 ) president of China Development Industrial Bank (中華開發工業銀行).