Fitch Ratings Ltd’s Taiwan branch yesterday warned that a real estate bubble was in the process of materializing as hikes in housing prices spread to second-tier cities.
In the past couple of years, property prices have surged not only in Taipei City, but also in areas adjacent to the capital, including Banciao (板橋) and Sinjhuang (新莊), the ratings agency said.
“We must remain highly vigilant as an asset bubble is forming [in Taiwan],” Jonathan Lee (李信佳), Fitch Ratings senior director of financial institutions, told a media briefing on assets bubbles in Asia.
Lee said property prices in Taipei City have increased at a compound annual growth rate of more than 12 percent for seven years, adding that Taiwan could follow China in imposing transaction taxes on properties sold.
Early last month, China’s State Council released a five-part plan aimed at cooling the real estate market, one of which was the reinstatement of a sales tax on residential properties sold within five years, the agency said in a report.
“The housing prices hike has prompted an increase in the misery index for home purchases because salaries have remained at the same levels over the past years,” Lee said, adding that the prices of old residences are also increasing.
Taipei City’s sharp housing price hike from its previous trough in the second quarter of 2003, the year when SARS hit Taiwan, “warrants a high alert for a potential sharp correction and consequent impact on mortgage quality,” the agency said.
However, Lee said it was difficult to pinpoint when the bubble would burst, and that if interest rates remained low, it would be hard to rein in the overheating real estate market.
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