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Real estate volatility spikes on housing bubble concerns

TAIPEI, Taiwan -- Following statements issued by government officials on Thursday warning of the growing likelihood of a real estate bubble in the Greater Taipei area, the property development sector yesterday saw a surge in volatility, with intraday fluctuation reaching as high as 1.55 percent at the end of trading.

On Thursday, officials of the Central Bank, R.O.C. stated that the average price of homes has outpaced income levels by a factor of 12.4, a figure that exceeds international norms by fivefold, and a condition indicative of an real estate bubble.

Finance Minister Chang Sheng-ford explained that rampantly rising home prices are the result of numerous factors, including the continued influx of capital into the housing market, broad speculation, and the public's perception that the supply of real estate is rapidly being outpaced by demand. Chang stated that despite rising values, rental returns on properties have yet to justify surging property prices. Based on the aforementioned observations, during a Legislative Yuan session on Thursday, Chang warned that a bubble may be forming in the real estate market.

The real estate development sector lost momentum shortly after making a 0.69-percent climb following yesterday's opening bell. As volatility increased yesterday, declines in the sector expanded to as much as 0.86 percent, and stabilized at 0.7 percent towards the end of trading, with intraday volatility reaching 1.55 percent.

Shares of King Town (京城建設), a sector leader with over NT$60 billion worth of properties in the works, particularly in the Greater Kaohsiung area, fell 3.37 percent yesterday, reaching an intraday low of NT$29.7 per share, with trading volume exceeding 1 million shares.

HSC (宏盛) shares receded by 2.36 percent, reaching an intraday low of NT$24.75, with trading volume approaching 2 million shares. The company is poised to release several landmark projects near the centrally located Nanjing East Road area next year.

Shares of Hauku Development Co. (華固) yesterday tumbled to NT$89.3, below its 26-week average of NT$89.96, on trading volume of around 1 million shares.

According to real estate agencies, purchases many of the properties acquired in recent years in the pricey Greater Taipei area were not funded by the salaries of individuals but by family fortunes accumulated over multiple generations. A majority of those buying homes on their own salaries tend to seek properties situated in the more accessibly priced New Taipei City region. Real estate agencies also commended the effectiveness of home-price suppression measures imposed by the central bank.

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