Global Covid Response Prompts Taiwan Property-Bubble Concerns

(Bloomberg) -- Authorities in Taiwan may need to take action to prevent cash flows generated by global pandemic support measures causing a local property-market bubble, one of Taipei’s most senior policy makers has warned.

Writing in the October edition of The Taiwan Banker magazine, Chen Nan-kuang, deputy governor of Taiwan’s central bank, warned that small, open economies such as Taiwan’s are vulnerable to easing measures by the world’s leading central banks.

Citing South Korea’s struggle to rein in soaring prices, he said it will be difficult to counteract bullish sentiment with policy measures if property buyers are convinced that prices will only continue to rise.

“Taiwan’s central bank should put macro-prudential policies in place early to stabilize the market and the financial system and prevent medium-term risk before expectations of large increases in property prices take hold,” Chen wrote.

He suggested that imposing loan-to-value and debt-to-income limits on mortgages for second or third properties would be the easiest option open to the central bank, rather than additional taxation, which could require legislation. The only restriction currently enforced by the central bank is limiting loans on high-end residences to 60% of the property’s value.

Banks are not particularly optimistic about the residential property market but are more positive than they were previously, central bank Governor Yang Chin-long told reporters in September. They are more reserved on the high-end sector, he said.

Directors Divided

Chen Shiu-sheng, a member of the bank’s board told Bloomberg on Saturday that directors are divided over the issue of property prices, with some viewing the market as healthy, while others are increasingly concerned about the concentration of capital in real estate assets.

Chen, who is also a professor of economics at National Taiwan University, said the bank should do more to clearly define the criteria it intends to use to gauge whether the market has overheated and implement selective credit restrictions.

“I hope the central bank can be more proactive in considering how to establish the information we need to take preventative measures as early as possible,” he said. “Once bubble sentiment has flared up, it’s difficult to put out.”

The central bank didn’t immediately respond to a request for comment on its official position.

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