Taiwan house bubble seen continuing despite rate hike

TAIPEI: A house price bubble in Taiwan's metropolitan areas is expected to continue as the central bank's latest rate hike will not be enough to cool the property market or check increasing inflows of foreign funds, analysts said.

Taiwan's central bank raised interest rates by an expected 12.5 basis points to 1.5% on Thursday, Sept 30 and said it would further urge banks to be prudent in the face of rising property prices in the capital Taipei and nearby areas.

But the lack of new concrete measures by the central bank beyond words of caution is unlikely to stem the rise in prices, at least for now, industry executives said.

"The central bank was surprisingly conservative this time, giving a chance of breather to the market," said Jessica Hsu, a project supervisor of property agent firm H&B Business.

Speculators have taken advantage of low interest rates to invest in the housing market in Taipei, while demand is rising from Taiwanese businessmen operating lucrative businesses in China and seeking second homes or investment property back home.

The strong demand has pushed house prices above affordable levels for wage earners.

The average price for an existing apartment in Taipei was around T$14 million (RM1.36 million) in the first eight months of this year, 11.5 times average yearly household incomes.

A year earlier the ratio stood at 9.9 times, according to Sinyi Realty, Taiwan's biggest real estate agency.

The issue has become politicised with several cities holding local elections at the end of this year, but no significant drops in house prices are expected unless the bank raises rates to 4% - 5%, some analysts said.

The central bank said it "judged it important to further urge banks to enhance risk control associated with land acquisition financing."

"Banks are urged to formulate appropriate policies and rules for vacant land mortgage lending, to require concrete and detailed plans for construction projects, and to apply reasonable LTV ratios and interest rates," the bank said.

The lack of new specific measures helped construction shares rise 1.26% on Friday, beating the main index's 0.12% gain.

The bank had earlier this year urged banks to tighten up conditions for home lending, particularly for second homes. -- Reuters