Taoyuan Nights

Let’s first take a look at the Taiwanese Government’s website about investing in Taiwan.

“Taiwan’s housing prices will rise 5-10% annually through 2010 at least, according to construction company and real estate brokerage executives speaking at a “real estate summit meeting” sponsored by the Taiwanese real estate magazine Zhu Zhan in early November. Some even declared this rate of growth would be sustained through the next ten years.”

” Others noted that the Olympics in Beijing in 2008 would not only boost China’s economy, but the economies of other countries in the region as well, and that Taiwan’s real estate market would be among those benefiting.”

Now, let’s take a look at today’s media, too. Bear in mind these journalists can’t be bothered to do their own research, so they’re simply serving up numbers presented to them by estate agents - whose interests are served best if it seems house prices are rocketing up!

With that in mind… take a look here at the China Post (Aug 1, 2008).

First of all, it again mentions the 10% July price drop in Taipei; and 15% drop in transactions.

Secondly, more information about the rest of the island. Taichung sees a drop of 5% in one month, in July alone. Closed deals were down by 30%. 5% a month annualises to… a 46% drop this year, before taking into account inflation… Kaohsiung had flat prices and a slight raise in transactions, but there’s no indication if this is just a normal seasonal ’summer rise’, or a seasonally adjusted figure.

I’d be interested to see if the other figures were seasonally adjusted - if they aren’t, the drop in Taipei and Taichung may be even more steep than the figures suggest!

Apparently there is an additional Autumn pressure on Taiwanese houses that I didn’t know about - Ghost Month! Quoting the China post, “Furthermore, as the Ghost Month has arrived, more sellers are expected to lower prices to attract buyers. In the Chinese culture, Ghost Month is the month of July on the Lunar Calendar, which this year lasts from Aug. 1 to Aug. 30. Most people are hesitant to buy houses during this period.”

Very interesting stuff - but the thing that stands out the most to me, is this quote from an estate agent who is talking about why people are selling, again from the China post article (my own emphasis added):

“most sellers lowered their prices in the hope of getting rid of their property as soon as possible, due to the mounting mortgage pressure“

Mounting mortgage pressure? With interest rates still near historic lows?

How on earth will these people cope if mortgage rates reach levels such as 15-25%, as they have in developed countries across the world in the past?

On the one hand we have the risk of even more price inflation if interest rates stay low and the currency gets weak. On the other, we have this ‘mounting mortgage pressure’ showing up at rates as low as 3%! Something tells me that Taiwan is not in for a good time in the next few years.

p.s. Other news just in. Housing transactions in Taipei are now down by 60% in just 3 months… going into the summer! 60% down in 3 months…blimey!