Taiwan's rate cut may fail to help housing demand

The 0.125 percentage point rate cut will help little to lesson the burden on home buyers, Sinyi Realty Co., Taiwan's only listed real estate broker, said in an e-mailed statement today.

"Home buyers are not getting any easier time in financing housing payments since banks are standing by their tightening credit stance and not willing to lend more," Stanley Su, senior researcher at Sinyi Realty, said in an interview today. "Banks may even put more scrutiny on borrowers as they face heightened default risk following Lehman Brothers' bankruptcy."

The central bank yesterday unexpectedly reduced interest rates for the first time since 2003, bringing Taiwan's discount rate on 10-day loan to banks to 3.5 percent and saying the global financial crisis has heightened risk of an economic slowdown. Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history on Sept. 15, with more than $613 billion in debt.

"Taiwan's housing prices are still overpriced," Chiang Liwen, manager of Taiwan Cooperative Bank's personal banking unit, said by phone today. "Banks need to be aware of default risks as a result of falling housing prices."

Taiwan Cooperative Bank, Taiwan's biggest bank by number of branches, lowered credit lines last year to owners of studio apartments that are under 15 ping, and the bank has no plan to relax the policy, according to Chiang.

A ping, the standard area measure for real estate in Taiwan, equals 3.3 square meters, or about 36 square feet. Home buyers in Taiwan usually get 80 percent financing from banks with the payment period lasting for 20 years, Chiang said.

Mortgage Loans

Taiwan's top five banks, including Taiwan Cooperative Bank, issued a total of NT$31.97 billion ($1 billion) in new mortgage loans last month, the lowest since the NT$21.19 billion of loans made in February, the central bank said in a statement this week.

"I'm not buying an apartment now unless housing prices fall significantly lower," said Eric Yao, 30, a renter for seven years who helps manage $152 million of funds at Truswell Securities Investment Trust Co. in Taipei. "A 12.5-basis-point rate cut is too small to convince me into bearing a mortgage for the next 20 years."

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