Taiwan's Housing Market: An Expert Analysis
This article summarizes a discussion about the current state of Taiwan's housing market, featuring insights from industry experts. The conversation revolves around challenges faced by construction businesses, potential policy changes by the central bank, and advice for prospective homebuyers.
Current Market Conditions and Challenges
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Construction Business Difficulties: Taiwan's multi-stakeholder housing market is facing challenges, with some construction businesses shutting down. Experts suggest the Central Bank's potential reduction in profit and loss for these businesses is a key factor. Several projects are becoming "rotten tail buildings" (unfinished projects).
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Land and Construction Financing: It is becoming harder for construction companies to secure financing for both land acquisition (historically 50% loan, potentially lower now) and construction (previously 80%, now potentially 50-60%). This may force companies to borrow from non-traditional sources at higher interest rates.
Central Bank Actions and Potential Impacts
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Interest Rate Adjustments: The Central Bank is expected to lower interest rates, following potential rate cuts by the U.S. Federal Reserve. Lower rates could stimulate the housing market. However, if property prices increase, the Central Bank may strengthen credit controls.
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Ministry of Interior Affairs: The Ministry of Interior Affairs is considering measures to protect homebuyers in cases of unfinished projects.
Developer Strategies and Market Manipulation
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Pre-sale Tactics: Developers are under pressure to sell a significant portion of pre-sale units (around 50%) to secure construction loans from banks.
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Delayed Construction Start: Developers might report a project start but delay actual construction to avoid penalties or market saturation. This can involve minimal work like digging a small hole.
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Design Changes for Extensions: Developers may submit design changes to extend project timelines.
Potential for Builder Bankruptcies
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Increasing Bankruptcies: Experts predict a rise in bankruptcies among smaller construction companies in the coming months.
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Cash Flow Problems: Many developers are facing "black ink bankruptcies," meaning they are profitable on paper but lack sufficient cash flow to meet obligations, such as paying workers.
Advice for Homebuyers
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Due Diligence: Homebuyers should visit the land administration office to check the land registry and ownership of the pre-sale project's base. Verify if the land is encumbered with debt.
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Construction Company Selection: Choose larger, more established construction companies to minimize the risk of projects being abandoned. Look for publicly listed companies, as they have more capital and a stronger reputation to uphold.
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Contract Review: Carefully examine the contract, specifically regarding price escrow and performance guarantees, to understand the protections in place if the project is not completed.
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Avoid Old Apartments: Experts advised not to buy older apartments, as they may become harder to finance in the future.
Loan Considerations
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Bank Valuation: Banks will assess the value of the property based on their own estimations, not necessarily the contract price. This can affect the loan amount.
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Loan-to-Value (LTV) Ratios: Even with a pre-approved loan of 80%, the actual loan amount may be lower if the bank's valuation is lower than the purchase price.
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New Qing'an Impact: The "Xin Qing'an" policy, which prioritizes first-time homebuyers, may be impacting the availability of loans for other buyers and construction financing.
Government Policies
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Forced Commencement: The policy of forcing developers to commence construction within a certain timeframe may be contributing to the financial strain on some companies.
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880 Billion: A reported 880 billion in construction projects starting is likely inflated due to superficial ground breaking.
Further Actions
- Contact the experts: If you bought a pre-sale and are running into loan issues, contact the experts for help.