Hot Times for Real Estate

Economic News

22 Jul 2010
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Buoyed by incoming head of state Ma Ying-jeou's commitment to closer economic ties with mainland China, Taiwan's real estate sector is looking optimistically at the future.

While on the hustings for the March 22 election, Ma promised to improve relations with the People's Republic of China and push for direct air links between Taiwan and the mainland, as well as follow policies that would revive the overall economy.

One of Ma's campaign pledges was to open up the nation's real estate market to Chinese investors within six months of coming to office. If implemented, the policy would give a major boost to the property sector and the construction industry.

According to Hong Van, the managing director of property firm CB Richard Ellis's Taiwan branch, both the top end of the residential real estate market and office occupancy should see strong growth this year.

Since the presidential election, there has been a surge in luxury home sales, driven by Taiwanese businesspeople based in mainland China investing on the back of the future implementation of direct flights between the two states, Van was reported as saying to the media on April 2.

Both the hotel and retail property markets could also see strong performances in the mid term should the two governments allow direct flights, while Taiwan's role as a regional operations and logistics hub would also gain a major boost, Van said.

However, it could be up to four years before the full impact is felt, he said, while multinational companies may want to wait and see the effects of the potential open door policy before shifting their base of operations to Taiwan, he added.

"It will take time for multinationals to become confident about the nation's macroeconomic turnaround. Only then will they consider relocation, which may be costly," Van said.

Van also warned that there was the risk of some overheating in the sector, with prices coming under pressure due to supply shortages in the property market. A study released by CB Richard Ellis at the end of January showed the vacancy rate for office space in Taiwan was running at just 8.05%, leaving little margin for a boom in demand.

A possible sign of things to come was the announcement on April 2 by the Core Pacific Group, the owners of Taipei's Agora Garden Hotel in the up-market Xinyi district, that it had decided to more than double the reserve price for the hotel. The 14-storey hotel is due to go under the hammer on May 30, with bidding now set to open at $490.5m.

Billy Yen, the general manager of DTZ real estate consultants advising on the sale, said the timing of the auction had been changed and the starting price revised up due to the improved economic climate.

"The auction will take place after the new president's inauguration on May 20 to take advantage of another surge of optimism in the market," Yen told local press on April 3.

By contrast, a recent study by the ministry of the interior's architecture and building research institute showed a downturn in confidence in the real estate sector. The report, issued on March 25 and covering the last quarter of 2007, warned there could be a slowdown in the sector following four stellar years, with confidence dipping over rising interest rates and consumer prices. The institute's study also showed 54,646 Taiwanese homeowners registered as having trouble meeting their mortgages, a steep rise on the previous quarter's results.

The real estate sentiment index fell to nine out of 25, its lowest since the first quarter of 2003, the report said. Any score of eight or below indicates a recession.

Chang Chin-oh, a professor of land economics at the national Chengchi University that helped compile the index, said, "Honestly, I am quite worried about a recession in the local real estate market," he told the local press on March 26. "I hope this warning will help drive the market to a soft landing."

That said, the report did not take into account the Ma factor, though all eyes are now turned to see if he will keep his campaign promises.

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