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June 29, 2017

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Central bank places new limits on housing market

Following its second quarter board meeting yesterday, the Central Bank, R.O.C. announced several restrictive measures to combat rampantly rising housing prices, adding that Taiwan's key interest rates will remain unchanged.

For the twelfth consecutive quarter, the Central Bank stated that the discount rate will remain unchanged at 1.875 percent, with the collateralized and unsecured loan rates to stay at 2.25 percent and 4.125 percent, respectively. Amid improving momentum in economic recovery and rising costs of goods, the Central Bank stated that the decision is primarily based on the lack of changes in interest rates initiated by the Federal Reserve.

Central Bank Ramps Up Restrictive Measures

Most notably, restrictive measures imposed by the Central Bank on the housing market include the reclassification of luxury homes, expansions in regions to see heightened monitoring of real estate transactions and further limits imposed on home loans and mortgages.

Regions to see heightened monitoring by the Central Bank include New Taipei City's Wugu District (五股), Taishan District (泰山區), Bali District (八里區) and Yingge District (鶯歌區) as well as Taoyuan County's Taoyuan City (桃園市), Luzu City (蘆竹市), Zhongli City (中壢市) and Guishan Township (龜山鄉).

In addition, the Central Bank announced that lenders may only extend loans and mortgages of up to 50 percent of a property's price to individual debtors with three properties currently under their names, compared to the previous 60 percent limit.

The classification requirement of so-called luxury homes have also been slashed by NT$10 billion for Taiwan's three major northern urban regions. Homes exceeding the prices of NT$70 million in Taipei City, NT$60 million in New Taipei City and NT$40 million in the rest of Taiwan will be classified as luxury homes, said the Central Bank.

The Central Bank explained that the restrictive measures are designed to counter a number of trends in the housing market, including the rising concentration of property transactions in major population areas that have began to spill over to lower-tiered markets neighboring coveted areas such as Taipei and New Taipei City. There are signs that speculators are leveraging financing through multiple mortgages in hoarding properties holdings.

  The Central Bank also explained that restrictions on home loans terms and reclassification of luxury homes is necessary as the higher volatility in the price of high priced homes represents added risk to financial institutions. The Central Bank, however, stated that since the number of mortgage applications represents only a 28.5 percent portion of residential real estate properties in Taiwan, the effects of restrictive measures may be limited.

The strength of the New Taiwan Dollar is ultimately determined by the international markets, cyclical factors, and irregular occurrences such as the sudden influx of capital, said the Central Bank, while reiterating its mission to initiate intervention measures only when Taiwan's market order and financial and economic stability are threatened.

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