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EDITORIAL: Property
market bubble risks burst
The central bank has sounded an alarm over the risk of a price bubble burst in
Taiwan¡¦s real estate market. The amount of empty housing units is approaching an
historical high, while property prices also remain stubbornly high despite
oversupply.
What this signals is that the central bank¡¦s credit-tightening measures have not
been enough to keep the property market in check.
A central bank report released on Friday shows that at the end of last year,
about 1.43 million housing units were sitting empty, based on electricity meters
registering almost zero consumption in the past year. That is a 1.13 percent
increase from 2011. Empty housing is just several steps away from the record
high set in 2009 of just under 1.5 million units.
Last year, property transactions shrank 8.84 percent to 330,000 buildings, the
lowest level in 10 years. This came in the wake of the government¡¦s introduction
of a luxury tax two years ago and ahead of a new transaction registration rule
based on market value that took effect this year.
In contrast, property prices rose 7.48 percent last year on an annual basis, the
central bank said, citing a real estate survey released by a property research
team at Cathay Financial Holding Co.
However, the central bank said that oversupply could continue, with developers
and construction companies planning to put more apartments on the market, which
could lead to a price decline. A burst real estate bubble could lead to a
property price crash and rock the nation¡¦s financial stability, the central bank
said.
Given that the alarm came just ahead of the bank¡¦s board of directors meeting at
the end of this month, there was renewed speculation that the bank is set to
extend its credit tightening measures from northern urban districts in the
Greater Taipei area to more areas such as Taoyuan County.
During the last board meeting three months ago, the bank did not tighten credit
rules on loans, despite some economists thinking this would help cool down the
housing market.
The property market is seen as a growth engine for most economies, but there is
no sign that Taiwan¡¦s booming real estate market will lead to a pick-up in the
economy anytime soon.
Instead, the nation¡¦s economy is losing steam as slumping demand from overseas
erodes its strength. This has forced the government to cut its GDP growth
forecast to 2.4 percent annually from the original expansion target of 3
percent.
The government should listen carefully and be cautioned against allowing the
real estate bubble to burst. Obviously, not only the central bank, but other
governmental departments need to take more steps to bring the market back and to
prevent it from the sort of overheating that ultimately led to economic
recession in Spain last year and Japan two decades ago.
To drive liquidity from the real estate market, the government should create
more investment tools and relax the ban on local life insurers investing in
public construction projects.
Local life insurers typically invest heavily in the property market in search of
high returns from leveraging low interest rates. A relaxation would help divert
this capital away from the housing market and would also help the government
finance public construction projects.
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