Taiwan pressures banks to stop loans for real estate speculation
Bloomberg in Taipei
Jul 14, 2010
From www.scmp.com
Taiwan's central bank governor, Perng Fai-nan, called on financial institutions to take steps to prevent housing speculation following complaints from the public.
"Many people have written to show their dissatisfaction that in the past one to two months, houses have been purchased and then resold at a higher price within a short time," Perng wrote in a July 2 letter to the chairmen of all financial institutions on the island. "Many speculative investors have bought more than 200 houses and contracted real-estate agents to sell them, with the speculative money having come from bank loans."
Taiwan's monetary authority is seeking to rein in property speculation as lending expands and prices rise, spurred by record-low interest rates. The central bank raised its benchmark rate to 1.375 per cent last month as the economy recovers and introduced a 70 per cent cap on loans for second homes while ordering banks not to extend further loans for renovations.
"The central bank has been applying pressure to get banks to stop lending to speculators for some time," Matthew Smith, a banking analyst at Macquarie Securities in Taipei, said. "One concern is that if property prices come down, speculators will be the first to bail and the banks will be left dealing with the risk."
Housing prices in metropolitan Taipei rose 20 per cent last year and may climb a further 10 per cent this year as buyers look for places to invest cash, Lee Jain-ming, a researcher at Sinyi Realty, said in May. He said interest rate increases might have little effect on damping prices as wealthy buyers did not need to rely on bank loans to fund purchases.
Housing prices in Taipei climbed 4.8 per cent in the first quarter, Lee said. Banks should consider offering other products which allow customers to invest excess savings while allowing lenders to control risks, Perng said.
Consumer loans, which include housing purchases and renovations, climbed for 22 months to May when they rose 4.5 per cent from a year earlier to NT$6.85 trillion (HK$1.65 trillion), according to central bank data.
In March, Minister of Finance Lee Sush-der said his ministry would suspend the sale of state-owned prime land to curb speculation.
The gap between owning and renting an apartment in Taipei has risen to a decade high as borrowers focus on capital gains over rental yields.
Housing, renovation and construction loans were the equivalent of 52 per cent of Taiwan's gross domestic product, the bank said last month as it issued new rules on lending in Taipei City and 10 suburbs within Taipei County. The concentration of lending in Taipei could undermine the effectiveness of banks' risk management, it said.
The central bank said on Thursday that it met executives from commercial banks following media reports that some lenders classified home loans taken out by company executives as corporate loans, instead of consumer banking, to evade the stricter home-loan rules.
"It's been hard for the central bank to prevent these actions even after the recent measures," Perng wrote in his letter to financial institutions. "Please explain to your workers to closely guard against such cases, as effectively controlling this risk is better for the healthy development of the housing market."
Bloomberg in Taipei
Jul 14, 2010
From www.scmp.com
Taiwan's central bank governor, Perng Fai-nan, called on financial institutions to take steps to prevent housing speculation following complaints from the public.
"Many people have written to show their dissatisfaction that in the past one to two months, houses have been purchased and then resold at a higher price within a short time," Perng wrote in a July 2 letter to the chairmen of all financial institutions on the island. "Many speculative investors have bought more than 200 houses and contracted real-estate agents to sell them, with the speculative money having come from bank loans."
Taiwan's monetary authority is seeking to rein in property speculation as lending expands and prices rise, spurred by record-low interest rates. The central bank raised its benchmark rate to 1.375 per cent last month as the economy recovers and introduced a 70 per cent cap on loans for second homes while ordering banks not to extend further loans for renovations.
"The central bank has been applying pressure to get banks to stop lending to speculators for some time," Matthew Smith, a banking analyst at Macquarie Securities in Taipei, said. "One concern is that if property prices come down, speculators will be the first to bail and the banks will be left dealing with the risk."
Housing prices in metropolitan Taipei rose 20 per cent last year and may climb a further 10 per cent this year as buyers look for places to invest cash, Lee Jain-ming, a researcher at Sinyi Realty, said in May. He said interest rate increases might have little effect on damping prices as wealthy buyers did not need to rely on bank loans to fund purchases.
Housing prices in Taipei climbed 4.8 per cent in the first quarter, Lee said. Banks should consider offering other products which allow customers to invest excess savings while allowing lenders to control risks, Perng said.
Consumer loans, which include housing purchases and renovations, climbed for 22 months to May when they rose 4.5 per cent from a year earlier to NT$6.85 trillion (HK$1.65 trillion), according to central bank data.
In March, Minister of Finance Lee Sush-der said his ministry would suspend the sale of state-owned prime land to curb speculation.
The gap between owning and renting an apartment in Taipei has risen to a decade high as borrowers focus on capital gains over rental yields.
Housing, renovation and construction loans were the equivalent of 52 per cent of Taiwan's gross domestic product, the bank said last month as it issued new rules on lending in Taipei City and 10 suburbs within Taipei County. The concentration of lending in Taipei could undermine the effectiveness of banks' risk management, it said.
The central bank said on Thursday that it met executives from commercial banks following media reports that some lenders classified home loans taken out by company executives as corporate loans, instead of consumer banking, to evade the stricter home-loan rules.
"It's been hard for the central bank to prevent these actions even after the recent measures," Perng wrote in his letter to financial institutions. "Please explain to your workers to closely guard against such cases, as effectively controlling this risk is better for the healthy development of the housing market."
