Regulators have asked lenders to conduct stress tests to gauge the impact a 25 percent drop in house prices would have amid concern speculators have driven the market too high, said Johnson Chung, head of mortgages at Ta Chong Bank Co (大眾銀行).
“The regulator is doing the stress test because the government is concerned about banks’ exposure to the property market,” Chung said in a telephone interview yesterday.
He said officials are also concerned that “hot money” may create a bubble in asset prices.
Regulators imposed mortgage curbs after house prices jumped 12.7 percent in the second quarter from a year earlier, according to Sinyi Realty Inc (信義房屋).
The Financial Supervisory Commission last week told banks to assess the risk of defaults in case of a slump in employment, property prices or economic growth, after seven banks failed stress tests in Europe.
Shiau Chang-ruey (蕭長瑞), chief secretary of the Financial Regulatory Commission, declined to comment yesterday.
The regulator didn’t reveal specific levels for the tests, which must be completed by Sept. 15.
“The government is trying to avert a repeat of what happened in Europe with the credit crisis and this is a pre-emptive move,” said Chang Chin-oh (張金鶚), director of National Chengchi University’s Taiwan Real Estate Research Center.
European regulators last month found that banks needed to raise a combined 3.5 billion euros (US$4.6 billion) of capital, while China is also stress testing banks to assess the risk that a possible slump in property prices may strain developers’ finances and cause home buyers to default.
Measures taken to curb speculation in Taiwan’s property market include capping home loans at 70 percent of a property’s value for buyers who already have a mortgage in the metropolitan Taipei area. The central bank also ordered lenders not to extend further loans for home renovations.
The average price of residential property rose 11.8 percent year-on-year in June to NT$295,000 (US$9,295) per ping (3.3m²), according to Sinyi Realty.
Trading volume of existing homes in Taipei dropped almost 10 percent last month after the central bank introduced the curbs, data from Sinyi showed.
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