Trading in the housing market appears to be stabilizing as a COVID-19 outbreak that started in May subsides, the latest transaction data show, while domestic banks continue to hold a positive outlook for the residential housing market in major cities.
Financial Supervisory Commission data indicate that total real-estate lending has staged a steady monthly increase, growing to a record NT$12.21 trillion (US$438.64 billion) as of the end of September, which was greater than August’s NT$12.14 trillion and marked the eighth consecutive monthly increase since January’s NT$11.63 trillion.
Real-estate lending registered double-digit percentage annual growth each month this year, with its share in bank lending standing at 26.83 percent at the end of September, compared with 26.73 percent in August and 26.88 percent in January, commission data show.
Even though the commission said that banks’ average property lending-to-total-loans ratio has changed little from last year — it remained around 26 percent in the past few months — several banks have been on the commission’s radar as their real-estate lending approaches the regulator’s property loan quota for banks.
Under Article 72-2 of the Banking Act (銀行法), loans extended for residential and commercial properties may not exceed 30 percent of the aggregate of a bank’s deposits and financial debentures. In September, seven banks reported that their property loans reached 28 to 29 percent of their total deposits and debentures, while one bank said its ratio exceeded 29 percent, but did not reach the regulatory ceiling, the commission said.
The latest lending data also suggest that the real-estate market remains hot and the central bank’s selective credit control measures for the market might not have worked as well as expected. The central bank has implemented several tightening measures since March last year by increasing the cost and limiting the source of funds for property buyers through loan-to-value ratio caps, but its moderate policy actions seemed at most to slow the pace of increases in property loans and housing prices while not stemming their further growth.
The upside pressures on property prices could have also been partially fueled by low interest rates. Therefore, a protracted monetary easing approach adopted by the central bank does not do much to cool the real-estate market. Some have suggested that the most effective solution would be more taxes, although there is no easy path for such changes to occur any time soon.
The public has grown more doubtful of the effectiveness of the bank’s measures to rein in real-estate speculation, which could ultimately impair the bank’s credibility. Some central bank board directors suggested in its September board meeting that it implement a mix of macroprudential measures and interest-rate adjustments to address housing market concerns, as relying solely on interest-rate adjustments to tame property price rises could create serious problems for other sectors.
On the other hand, as banks’ real estate lending has made up a growing share of their total lending, it has also invited concerns about whether economic development in Taiwan is balanced, whether banks’ resource allocations are reasonable and whether their property-loan risk management is adequate. Once the central bank decides to raise its policy rates, or if the asset bubble collapses, people who cannot pay their mortgages would likely dump their properties to the banks, which would result in systemic risks for banks. The financial regulator and monetary policymaker should take precautions as soon as possible.
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