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Updated Wednesday, March 10, 2010 10:51 am TWN, The China Post news staff

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Construction shares dip on credit tightening

TAIPEI, Taiwan -- Construction shares dipped yesterday, after the government announced a series of credit-tightening measures to clamp down on property prices.

The construction sub-index of the benchmark TAIEX fell 1.9 percent, the worst among the TAIEX's eight stock categories.

The TAIEX, meanwhile, closed slightly higher yesterday, edging up 8.32 points, or 0.1 percent, to close at 7,770.59.

Monday, finance minister Lee Sush-der said publicly-run banks have been told to tighten credit to real estate investors or luxury home buyers in a bid to check soaring housing prices.

Among the tightening measures imposed on luxury home investors were: limiting the amount of loans a bank can provide in proportion to the property's value, and scrapping a grace period in which only interest is paid, Lee said, during a legislative hearing.

The measures fueled concerns developers will take a hit in their offerings of pre-built houses between March 1 and Apr. 30, the so-called “National Youth Day” period.

Shares of construction firms slid. Farglory Land Development Co., Taiwan's biggest construction company by value, fell 1.5 percent to NT$66, while Cathay Real Estate Development Co., the second-largest, declined 2.6 percent to NT$12.95.

Analysts said the property market may feel the impact of the measures in the short-term. In the long-term, however, a rally is still expected.

According to construction conglomerate the King's Group, this current wave of property price hike is due to an influx of capital from abroad, seeking to capitalize on reduced gift and estate tax rates.

“The effects of the government's credit-tightening policies will, in our view, by limited,” the group said.

It would be hard to see the real estate market taking a turn for the worse in the long-run, given the bullishness in Taiwan stocks, the United Evening News reported, citing an unnamed institutional investor.

The housing market may enter a recession only if the central bank directly raises interest rate, or if cross-strait ties worsen, the expert said.

As for the TAIEX yesterday, it opened at 7,762.4 and fluctuated between a narrow range of 7,737.65 and 7,770.59 during the day's trading.

Market turnover totaled NT$86.23 billion, down from the previous day's NT$103.89 billion.

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