The Executive Yuan last week approved a Ministry of the Interior proposal to provide one-off mortgage subsidies of NT$30,000 to eligible home buyers. The program is expected to benefit about 550,000 low-income and middle-class households, while owners of multiple homes are to be excluded to ensure the subsidy does not encourage homeowners to buy additional property or help luxury home buyers. The move comes after the central bank raised interest rates for four straight quarters, putting increasing pressure on home buyers. The government hopes the legislature will approve the program in April.
However, the plan raised worries among lawmakers that it would offset the effects of amendments to the Equalization of Land Rights Act (平均地權條例) that were passed last month to rein in soaring housing prices by curbing speculation in the presale property market and imposing heavy fines for market manipulation.
As economic growth is slowing, mortgage rates are rising, while real wage growth cannot keep up with inflation. Market participants are faced with persisitent macroeconomic uncertainty, and the gap between the price expectations of real-estate buyers and sellers is widening. The housing market has shown early signs that the transaction volume is shrinking. Property prices are trending downward, albeit slowly.
As a result, the one-off mortgage subsidy is unlikely to reverse the trend in the housing market. Data compiled by Chinese-language magazine Housing Monthly showed that sales rates for presale and newly completed houses in northern Taiwan averaged 45.3 percent last year, down 14.8 percentage points from 2021, reversing the trend after five years of growth. The decline marked the largest retreat since 2015, as market sentiment continued to deteriorate.
Housing Monthly researchers forecast that sales rates would remain below 50 percent this year, as the market faces unfavorable factors, such as the amendments to the Equalization of Land Rights Act and rising political uncertainty ahead of next year’s presidential and legislative elections.
Nonetheless, in addition to implementing policies to curb housing speculation and central bank rate hikes to cool the housing market, the government should also seek to direct hot money away from the real-estate market into real production and industrial investment, making it available to start-ups and other drivers of innovation, as well as for medium to long-term research and development in various industries.
The central bank has tightened its monetary policy to cool the real-estate market, but rate hikes mainly seek to prevent funds from flowing to the property market to ensure financial stability. They are not the best policy tool to battle rising housing prices. There are other fiscal measures and policy tools that would channel funds into real production more effectively, stimulate growth and boost long-term industrial development.
The government should focus more on establishing a dynamic investment environment for local industries, including reducing restrictions on wealth management and financial services, encouraging high-net-worth people to invest in private equity funds and setting up a tax incentive scheme to encourage investment in start-ups. After all, money is always the smartest. By blocking the channel into the real-estate market, the government would help money find a way toward lucrative investment oportunities that the nation could benefit from.
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