Controlling excessive real estate price levels 'necessary:' central bank
By John Liu, The China PostTAIPEI, Taiwan -- Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), stressed that it is necessary for the government to monitor and control excessive price levels in the real estate market, especially “pre-sale properties.”
October 4, 2013, 12:17 am TWN
Many real estate developers in Taiwan start selling properties before they are built. With its high degree of leverage, pre-selling is tantamount to futures contract trading, as speculators can easily purchase 10 pre-sale properties for the price of one actual property, said Perng. He implied that speculators borrow money to invest in pre-sale properties and then wait for the price to go up to put the properties back onto the market. Accordingly, pre-selling is a major factor in rising house prices and needs to be addressed by the government, Perng said.
According to a local news source, the central bank has rolled out measures to suppress prices in the real estate market. In some designated areas in the Greater Taipei area, loan restrictions are placed on buyers who purchase their second home and onward: 60 percent or less loan-to-value ratio, 2 percent or higher interest rate, and no grace period allowed. Perng stressed that the government would only regulate those with two or more properties in their possession, and not first-time buyers.
Perng said recently in a legislative session that “I hope the real estate price will be stabilized” and that “the central bank will try its best to maintain a stable price level.”
Monetary Policy and Property Prices
Perng said that real estate prices are influenced by supply and demand as well as capital inflow from overseas. In addition, Taipei City and New Taipei City's convenient transportation, widespread MRT network, and high population working in the cities have also contributed to rising property prices.
Legislator Hsu Tain-tsair (許添財) recently said in an interrogation session that the central bank's monetary policy controlled the supply and demand of currencies, which in turn contributed to rising property prices. Therefore, the central bank should be held partially responsible for rising property prices.
Hsu said the central bank's selective credit policy has contributed to a surging mortgage and construction loan balance (about NT$7 trillion) in the country. There is a surplus of capital in the market, Hsu added.
Perng said in response that while the monetary policy is related to housing prices, it is not the sole determinant of property prices. Despite high interest rates, property prices are still rising in some countries, Perng said, adding that the abundance of capital in Taiwan comes from its excess savings. The central bank has tried its best to retrieve excess capital in the market by means of issuing certificates of deposits, Perng added.