Latest rate hike expected to weigh on real-estate market

BLEAK PICTURE:
Double-digit percentage declines in the commercial real-estate market would continue, a consultancy said, after a 20.3% drop since January

  • By Crystal Hsu / Staff reporter

The central bank’s latest 0.125 percentage point rate increase would further dampen buying interest in residential and commercial properties, after transactions in the first eight months of the year slipped into contraction territory amid economic uncertainty, analysts said yesterday.

The central bank on Thursday raised interest rates by 12.5 basis points, in line with market expectations, after Taiwan’s consumer price growth last month exceeded the 2 percent alert level, but is expected to decline below the threshold next year.

The tightening would lift interest rates on first-home mortgages to 1.82 percent and higher for luxury homes and multiple mortgages, said Tseng Ching-der (曾敬德), research manager at Sinyi Realty Inc (信義房屋), Taiwan’s only listed broker.

For home owners who take out NT$10 million (US$31.58 million) in a 20-year mortgage, this year’s rate increases would add NT$2,313 to their monthly payments, Tseng said.

That would have prospective home buyers think twice before joining the market amid rising food and energy costs, Tseng said.

Sellers who are eager to exit the market next quarter would have to be flexible about their target prices, the analyst said, citing a recent survey that showed more than 55 percent of potential buyers would cut their budget or postpone purchases to grapple with rising interest rates.

The bleak picture would extend to the commercial property market, after land and property deals sank 20.3 percent year-on-year in the first eight months, property consultancy CBRE Taiwan said.

The latest rate hike would raise the required minimum returns on real-estate investments on the part of life insurers to 2.595 percent, a difficult challenge to overcome for objects in central locations, CBRE Taiwan said.

Life insurers would focus on investment targets that generate 2.7 percent in returns, as the central bank might raise the interest rate again in December, it said.

Continued property price increases would add difficulty to life insurers’ search for suitable objects, although domestic firms would remain willing to increase real-estate stakes, it said.

CBRE Taiwan is looking at further double-digit percentage declines in commercial property trading, as land owners would largely refuse to make concessions.

Drastic rate hikes by the US Federal Reserve would increase the chance of a hard landing in the US economy, which would be unfavorable for Taiwanese exports, the consultancy said.

The Fed raised interest rates by 0.75 percentage points earlier this week and indicated that further rounds of monetary tightening would be needed to tame inflation.

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