A major local construction company’s surprising announcement last week that it would lower the prices of its presale housing projects by between 15 and 25 percent to boost sales has drawn mixed responses from inside and outside the industry.
Some critics wasted no time in saying other construction companies and land developers would likely follow suit, as a slew of government policies — such as a luxury tax on home sales and market transparency rules — have dealt a serious blow to the housing market.
Critics say this could be particularly true for companies that accumulated large land inventories at the peak of the market, which are under increasing liquidity pressure now and may need to take urgent, drastic action to clean up their balance sheets.
However, some say Highwealth Construction Corp’s aggressive pricing strategy is just an individual case, given that the two projects in question — one in Taipei City’s Shilin District (士林) and one in Neihu District (內湖) — are already overpriced.
So far, several other major construction firms have said they have no plans to slash presale housing prices in response to Highwealth’s move. Others have called Highwealth “immoral” and accused the company of hurting the industry at a time when it has been assailed by the government’s cooling measures and by negative macroeconomic fundamentals, both at home and abroad.
Although other companies have dismissed and criticized Highwealth’s move, it is by no means clear that the properties in question are fairly priced. The reduced prices — NT$900,000 (US$29,712) per ping (3.3m2) for the presale project in Shilin and NT$750,000 per ping for the project in Neihu — are still higher than average for the two districts.
Highwealth is a market leader, and not just because it was the largest buyer of land in Taiwan and the leading construction company by revenue last year — so it is no surprise that it should be the first to make potentially market-changing price cuts.
Whether other companies follow Highwealth’s lead remains to be seen, and it is also not yet clear what effect such cuts might have on the market as a whole.
Various factors are at play: First, should the number of property transactions continue falling and housing inventories remain high, developers of presale homes will face increasing pressure on their balance sheets and those without deep pockets are likely to cut prices first.
Second, once presale projects in general come under downward price pressure, any correction is likely to spill over to the market for existing homes.
Third, the outlook for the property sector also depends on the government’s ability to continue to curb real-estate speculation, as well as on consumers’ attitudes toward the housing market and their own personal financial situations.
If the government really intends in the near future to tax real estate based on actual transaction prices as it has previously claimed it would do, and if the government continues to curb the flow of hot money, the price adjustments will be here to stay.
At the same time, consumers need to realize that if Highwealth’s price cut sparks a downward correction, it will become a buyer’s market, and they can hold back on home purchases in anticipation of further declines. The Highwealth case may yet prove a watershed in Taiwan’s housing market.
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