Real estate bubble likely in Taipei: expert

Lee Hsin-chia, senior vice president of Fitch, made the remarks in a report released yesterday titled “Assets Bubbles in Asia?” The report analyzed real estate price changes in different Asian markets in the wake of the global financial storm.

Low interest rates have prompted investors to put their capital in real estate, causing prices to skyrocket, Lee said, adding that this has been a phenomenon in China, Hong Kong and Singapore.

As for Taipei City, he said the city's compound annual average growth has been 11 percent since 2003, when the island was plagued by the severe acute respiratory syndrome or SARS.

Last year, the city's prices increased by 20 percent, an increase that is too large for the government to ignore, he said.

He further noted that the price increase is not only seen in Taipei City but also in the satellite cities surrounding it, including Banciao, Sinjhuang and Tucheng; all cities of Taipei County.

The price hike is seen for not only new buildings and condominiums, but also with old apartment as well, due to various community revitalization programs launched by the government, he said.

However, the seemingly prosperous market belies the fact the average worker's salary has not increased, he said.

This has caused a widening gap between the real estate haves and have-nots, he said. Wealthy people with substantial capital can buy two to three luxury condominium units, while workers with average salaries can't even buy a regular apartment unit.

He emphasized that now may be too early to discuss a real estate bubble in Taiwan. However, he said continued price hikes present a real concern.

If the central bank begins to raise interest rates, and the return on investments in the form of rent does not keep up with rising mortgages, a downturn in the market could occur, he said.

Such a scenario would not only endanger Taiwan's banking system but also dampen the country's economic growth, he said.

He pointed out that governments throughout Asia have launched measures to curb property prices. China, for example, has announced the following: a tax on real estate transactions within five years, low-priced housing, and a merit system awarding local officials for lowering property prices.

Another example he cited was Hong Kong, which has reduced maximum loans to transactions worth HK$20 million or over to 60 percent. Korea has also implemented a similar measure, lowering maximum loans to Seoul homebuyers to 50 percent, he said.

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