EDITORIAL: Keeping cool in a hot market

ByRichard C. Sloan

Dec 19, 2021

A large trade surplus, abundant liquidity, large capital inflows and low interest rates continue to push up property prices in Taiwan this year, prompting the central bank to announce a new one last week. series of selective credit checks on local banks. The action was not surprising, as mortgages still make up the majority of bank lending and speculative transactions were reported in several cities.

At its quarterly board meeting on Thursday, the central bank amended the regulations governing the extension of mortgages by financial institutions (中央銀行 對 金融 機構 辦理 不動產 抵押 貸款 業務 規定), effective Friday, to create stricter loan-to-value (LTV) limits on real estate purchases. These measures include lowering the LTV ratio on mortgages for a third house or luxury home to 40%, land loans to 50% and loans for unsold new homes to 40%, while capping the LTV ratio on mortgages for unused land in industrial districts at 40. percent.

The central bank has implemented selective credit control measures three times since December last year to curb real estate and land hoarding. A fourth cycle shows that such measures remain the tool of choice for policymakers, rather than aggressive policy tightening, to contain house prices as the bank aims to slowly calm an overheating real estate sector.

Along with other actions implemented by ministries over the past year, such as a system for recording real prices for all real estate transactions, an amendment to the integrated taxes on real estate and land transactions, Higher tax rates on property sales within five years of purchase and stricter requirements on transfers of pre-sale projects – these measures clearly show the intention of policy makers to discourage speculative transactions through a concerted effort.

Nonetheless, as the average Taiwanese household mortgage charge ratio exceeds 30%, and the chances that the central bank will raise interest rates in the second half of next year are high, borrowers – especially younger buyers of a first-time home and those who are heavily in debt – need to prepare for increased payments after the grace period.

Measures to reduce LTV ratios would increase the pressure on most investors, but would not affect those with deep pockets, especially construction companies and real estate developers. As long as the interest rate remains relatively low, falling LTV ratios would put virtually no pressure on them. However, the government’s actions are a warning to the housing market and suggest that it wants to reduce the risk of a self-reinforcing price-hike cycle, which would affect housing affordability and could force downward pressure on housing. Conservative builders to slow their buying pace and develop land, as they would wait for any other new policy in the works.

The housing market is cyclical, and there is a clear dynamic of rising prices and transaction volumes, given positive forecasts from a number of banks and real estate agencies.

The government has the heavy task of promoting a healthy development of the real estate market in the medium to long term, while ensuring that house prices remain affordable and do not exceed economic fundamentals. He doesn’t want his cooling measures to hurt real home buyers, especially first-time buyers.

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