The central bank’s second interest rate hike would further slow this year’s property transactions, which have plunged by double percentage points in the first five months amid rising economic uncertainty, property analysts said yesterday.
The monetary policymaker on Thursday hiked the policy discount rate by 12.5 basis points to 1.5 percent, but did not introduce further credit controls on real-estate lending as it seeks to combat inflation without overly constraining GDP growth.
“Commercial property transactions shrank 26 percent from a year earlier to NT$50 billion [US$1.68 billion] in the first five months, while land deals tumbled 47 percent to NT$70 billion, as the COVID-19 outbreak and unfavorable policy drive buyers and sellers to the sidelines,” Colliers International Taiwan (高力國際) said in a note.
Historical data show interest rate hikes and credit controls are effective in dampening purchasing interest, explaining why buyers these days hesitate to make offers, the broker said.
The rate hike, while mild and widely expected, would fuel property revaluation and raise investment hurdles, while sellers refuse to budge, making it difficult to close deals, Colliers Taiwan said.
The latest rate hike would lift the minimum yield requirement for real-estate investment from 2.345 percent to 2.47 percent, rendering qualified targets in Taipei and New Taipei City very rare in light of their soaring prices, Colliers Taiwan managing director Andrew Liu (劉學龍) said.
Liu suggested that companies with investment needs shift their focus to commercial and industrial properties, such as office buildings, factories and logistics facilities in Taoyuan, Hsinchu and Taichung.
Despite the headwinds, companies should make investment plans because the COVID-19 outbreak would be over one day and things would return to normal, Liu said.
CBRE Taiwan (世邦魏理仕), another property broker, shared similar observations, saying that land deals this year would remain above long-term averages, albeit lagging behind the level seen last year.
Residential properties would also take a hit, but at a milder scale, analysts said, as interest rates would climb from 1.65 percent now to 1.7 percent, the highest in six years.
Monthly mortgage payments would rise by NT$611 for homeowners who have taken out 30-year, NT$10 million loans — equivalent to the cost of buying one cup of bubble milk tea per day, Sinyi Realty Inc (信義房屋) said, calling the additional costs “bearable.”
However, Sinyi research manager Tseng Ching-der (曾敬德) said homeowners should brace for more interest rate hikes to 2 percent at the end of this year, if inflation fails to ease.
Evertrust Rehouse Co (永慶房屋) said people would feel the pinch when cumulative interest rate hikes reach 0.75 percentage points, from 0.375 percentage points at present.
Heavier mortgage payments would squeeze budgets for other consumption items, Evertrust Rehouse deputy research head Chen Chin-ping (陳金萍指) said, advising caution in financial planning, especially for people with relatively low incomes.
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