The central bank intends to maintain selective credit controls on local banks for an extended period and might fine-tune its control measures, central bank Governor Yang Chin-long (楊金龍) said on Saturday.
The central bank’s main concerns stem from housing price increases across Taiwan and the annual growth in lenders’ outstanding housing loans remaining high, Yang said.
The governor made the remarks during a speech at a forum in Taipei that focused on the role of the central bank in ensuring a sound development of the housing market.
Photo courtesy of the central bank
“The central bank will continue to review and adjust selective credit control measures on a rolling basis to promote financial stability,” the central bank’s Web site quoted Yang as saying.
The central bank has introduced four rounds of selective credit controls on local banks since December 2020 to curb rising property prices and land hoarding.
The measures have increased in scope and include stricter loan-to-value limits on property purchases and restrictions on presale housing transactions, which were necessary because mortgages made up most bank lending and speculative transactions had been reported in several cities, the central bank said.
Other central bankers had suggested adjusting interest rates to rein in rising home prices and curb speculation.
In an article in the January edition of Taiwan Banker magazine, central bank Deputy Governor Chen Nan-kuang (陳南光) wrote that low interest rates are to blame for rising housing prices and should be included in the considerations over monetary policy tools to address the issue.
Reiterating his stance, Yang said that the central bank would raise its policy rates at an appropriate time, which would prevent home prices from rising further, and make the selective credit controls more effective and help promote financial stability.
However, Yang said that the central bank mainly uses interest rates to stabilize the overall economy, adding that the rates are only one of several factors that affect housing prices.
Interest rate adjustments have a wide range of effects on the economy, Yang said, adding that it requires a significant rate increase to meaningfully affect housing prices.
“If the issue of housing prices is simply dealt with through interest rates, the trade-off would be a substantial slowdown in economic growth, and the costs would far outweigh the benefits,” Yang said. “Nonetheless, a slight increase in policy rates would not only fail to achieve a significant downward revision in housing prices, but might also lead to additional unemployment.”
“Raising interest rates doesn’t actually help young people struggling to buy a home. The main winners are the elderly and the wealthy,” he added.
The development of the housing market covers a wide range of issues, such as financial stability, housing justice and resource allocation, and there are structural problems embedded in the domestic housing market, the governor said, adding that the matter is complex, and demands central and local government agencies to work together to come up with short, medium and long-term measures to cope with the matter.
Yang said that the rise in housing prices in Taiwan over the past two years was due to demand-side factors — such as abundant global liquidity, strong private investment, consumers’ anticipation and speculation in the market — and supply-side factors — including rising land prices, and costs of building materials and wages.
The housing market has in the past few years been especially hot in the central and southern parts of Taiwan, he said.
The current credit controls are wider in scope, more diverse and stronger than previous measures, he said.
However, to effectively lower unrealistic expectations, curb speculation and prevent land hoarding, other financial and tax measures would also be needed, while expanding the amount of social housing and providing affordable rental homes remain crucial, Yang said.
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