Taiwan property prices will rise less than Hong Kong and China when the Chinese currency is allowed to appreciate over a period of time, said ING Financial Markets.
“If Beijing restores a yuan-appreciation trend, it would attract speculative capital inflows, some of which would go to the property market,” Tim Condon, Singapore-based chief economist at ING said in an e-mail interview. “Taiwan would be the least affected because the Central Bank of the Republic of China (Taiwan) would intervene to keep the New Taiwan Dollar from becoming too much of a one-way bet.”
The Taiwan dollar will appreciate less against the U.S. dollar compared with a yuan gain against the greenback because of the likelihood that the Taiwan central bank would step in to curb the local currency’s gains, said Condon.
Farglory Land Development Co., Taiwan’s biggest construction company by value, fell 2.5 percent to a one-month low at the close of Taipei trading. Sakura Development Co. slid 6.2 percent to a 10-month low.
Taiwan’s financial regulator has asked the bankers’ association to tighten lending procedures and ensure the quality of loans, after banks on the island of 23 million people cut mortgage lending rates to the lowest since records began, driving prices of residential property in the Taipei metropolitan area up 20 percent last year.
After scrapping a peg to the dollar in July 2005, the Chinese government allowed the yuan to gain 21 percent before holding it at about 6.83 to the U.S. currency since July 2008. While that aids its exporters, it has incurred criticism abroad for hurting foreign companies and fanning Chinese inflation.
China will allow the yuan to gain this year, according to all 19 analysts surveyed by Bloomberg News this month. Twelve are forecasting a move by June 30, making it cheaper for Chinese consumers to buy foreign products and pushing up the cost of the country’s own goods in international markets.
Taiwan Central bank Governor Perng Fai-nan said last month that policy makers “won’t sacrifice price stability for economic growth” and will impose “prudent” measures on property lending to prevent the emergence of asset bubbles. Perng had told lawmakers Taiwan will maintain order in the currency market when irregularities cause excessive fluctuations in its exchange rate.
Hong Kong will benefit most from continued yuan appreciation, said Condon. The Hang Seng Property Index gained as much as 2 percent today.
“Hong Kong would be the biggest beneficiary because the government appears less worried than Beijing about property overheating,” Condon said.
He added that this is because property price inflation is more sensitive politically in China than in Hong Kong.
A stronger yuan would make Hong Kong’s homes more affordable to mainland Chinese, who have helped drive a 38 percent jump in prices since end-2008, and fuel further increases, seven out of nine analysts surveyed by Bloomberg News said earlier this month.
However, if China has a one-off yuan appreciation instead of a trend appreciation, the impact would be small, said Condon.
“A one-time revaluation won’t attract as much speculative capital positioning for a one-way renminbi bet,” said Condon, using another term for the yuan. “Less speculative capital, less pressure on housing and other asset prices.”
Relations between the island and the mainland are at the warmest since a civil war six decades ago, after Taiwanese President Ma Ying-jeou abandoned his predecessor’s pro- independence stance after taking office in May 2008. Taiwan and China have been ruled separately since Chiang Kai-shek’s Kuomintang, or Nationalists, fled to the island after being defeated by Mao Zedong’s Communists in 1949. China regards Taiwan as part of its territory.
To contact the reporter on this story: Weiyi Lim in Taipei at Wlim26@bloomberg.net