Taipei Times: Market analysts have mixed views about an upcoming recovery in the local property market. Some say low home prices and low interest rates will soon attract investors to inject money into the market while others say an oversupply still spells difficulties to prop up a sluggish market. What do you think?
Billy Yen (
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
Recently closed deals are mostly low-priced properties and the recent market boom is purely a result of government stimulus policies since consumers need less cash to pay up loans. This doesn't make for a market recovery. Besides, over 80 percent of the nation's adult population already owns a home, which leaves only 15 percent [of the adult population] needing homes in an oversupplied market.
If 15 percent of the population purchases homes later, the game's over in the property market and then prices may drop further. So, reality bites because there will be indefinite non-performing collaterals locating limited buyers. Most foreign banks are more aware of the market reality than local banks and react very efficiently in grabbing the remaining 15 percent of demand. I'm afraid that local banks, which are still hesitant in releasing non-performing collaterals for sale, may meet further setbacks in the market.
TT: How effective are your bank clients when liquidating their non-performing assets via private auctions?
Yen: It usually takes one year for banks' non-performing assets to go through four court auctions before they are showcased on private auctions. After failing four court auctions in a year, the prices are expected to drop by 20 percent in value. On average, closing prices on private auctions are around 50 to 80 percent of objects in market value. So, time is money here -- banks have to deal with their impaired assets.
I'd like to give a harsh warning to some local banks, which are still expecting a U-turn recovery in the property market -- no signs of a strong recovery are foreseeable within the next three to five years according to our practical analysis. The later banks plan to sell off impaired assets, the less return can be generated.
The DTZ has held 17 auctions in the past year, our experience shows that banks can only have a return of between one fourth to one third of their lending loans. And 20 to 30 percent of the nation's nearly NT$2 trillion in bad loans -- some NT$600 billion -- are expected to enter the market for sale soon.
TT: For potential home buyers, private auctions seem to have replaced conventional real estate brokers and become one of their channels to shop for new houses. What tips do you have for them to get bargains?
Yen: Unlike those in court auctions, [non-performing] objects sold in private auctions won't bring any further risks to buyers since banks have previously taken care of legal nuisances before bidding. And interested bidders can check on the houses before the auction. After winning the bid, buyers don't have to pay up the total sum within a week and home loans may be granted pending a confirmation of the buyer's bank credit.
Moreover, unlike those that are displayed at real estate agencies with a negotiable high price, bidders start bidding on objects in private auctions from the lowest floor price. However, most banks' non-performing assets that enter the auction are mostly low-priced and are of secondary quality.
In general, banks will lay down the lowest price to start with, which is around 55 to 60 percent of the units' market value. Any bids placed and won with less than 70 or 80 percent of their market value are bargains.
Within the next three to five years, a revolutionary change will be made in the way people shop for houses. Auctions will become a primary venue for buyers.
TT: In addition to existing asset management companies (AMCs), there seems to be some newly established competitors trying to enter the auction market and grab a market share. How does DTZ look at the competition?
Yen: We're the first auction organizer in Taiwan, which has mapped out a very transparent and fair bidding scheme to benefit consumers. We welcome new competitors, but we worry about fake bidders who may be planted to hike up the closing price in auctions, which is not be fair play. Disputes may arise if auction organizers double as real estate agencies and manipulate the bidding process since these two have conflicts of interest.
Strict disciplines should be laid down [among all players] to avoid insiders meddling with an open, fair and clean auction. As for AMCs, I don't think they will try to organize auctions themselves to sell off non-performing assets and compete with us. Instead, they will probably outsource their deals to professional auction organizers like us.
TT: Will the new competition and AMCs' entering the market drive property prices down further?
Yen: It's very likely. Out of competition, banks and AMCs may place a slightly lower floor price for bidders to start with in order to liquidate fast. But property prices are a matter of demand versus supply. With an oversupply and a market recession, prices are sure to decline.
Currently, property prices in Taipei have dropped by 15 percent, while those in central and southern Taiwan have also dropped by almost 40 to 50 percent. As for investors, prices can never be too low for them. They are still closely watching for units with lower prices and better quality and in better locations before they actually put down their money.
TT: The government has recently come up with plans such as the implementation of a real estate securitization (不動產證券化) bill and the introduction of Chinese capital to stimulate Taiwan's sluggish property market. How feasible do you think the government's plans are?
Yen: Chinese capital will never be invested in Taiwan's property market -- a marginal area in their eyes. The only way for the government to stimulate the market is to allow foreign capitalists to make property investment here since a market recession may mean lucrative opportunities for them. Their capital is abundant and is capable of propping up new demand.
However, the government's real estate securitization plan will only end up helping foreign capitalists [or entrepreneurs] to securitize their expensive office buildings, which are difficult to auction off, so as to raise new capital from the public.
TT: As one of the first private auctioneers, how do you look at your role and professionalism in the business?
Yen: Eloquence, market expertise, a world view and entertaining ability are the attributes of a fine auctioneer. He or she may simply act as a host [in auctions], but property knowledge will perfect his or her skills. A well-performing auctioneer should be able to keep the auction atmosphere and its process under total control. More importantly, he is also an order-keeper and dispute-settler on the spot since a unit worth millions of NT dollars is usually sold within an average of five minutes.
This is a new business and there's still little talent in Taiwan. Therefore, branding strategies may be very important [to us] in the near future so that consumers know which companies are professional and who to trust.
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