Taiwan Central Banker Perng Asks Lenders to Help Stop Housing Speculation

Taiwan’s central bank Governor Perng Fai-nan called on financial institutions to take steps to prevent housing speculation after complaints from citizens.

“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 and published yesterday on the central bank’s website. “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 percent on June 24 as Taiwan’s economy recovers and introduced a 70 percent 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,” said Matthew Smith, a banking analyst at Macquarie Securities Ltd. in Taipei. “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.”

Photographer: Maurice Tsai/Bloomberg

Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), speaks during a news conference in Taipei. Close

Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), speaks... Read More

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Photographer: Maurice Tsai/Bloomberg

Perng Fai-nan, governor of the Central Bank of the Republic of China (Taiwan), speaks during a news conference in Taipei.

Farglory Land Development Co., Taiwan’s biggest construction company by value, gained 1.22 percent to NT$66.20 as of 11:34 a.m., the highest since June 24. Cathay Real Estate Development Co., the second largest, was unchanged. Farglory Land spokesman Huang Chih-hung and Chen Ren Tse, a spokesman at Cathay Real Estate, weren’t immediately available for comment.

“This is not entirely a new regulation,” said Frank Lin, an analyst at KGI Securities Co. “It’s just improving previous policies made by the central bank. It’s not a surprise.”

Housing prices in metropolitan Taipei rose 20 percent last year and may climb a further 10 percent this year as buyers look for places to invest cash, Lee Jain-ming, a researcher at Sinyi Realty Co., said in May. Interest rate increases may have little effect on damping prices as wealthy buyers don’t need to rely on bank loans to fund purchases, he said at the time.

Consumer Loans

Housing prices in Taipei climbed 4.8 percent 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 wrote in the July 2 letter.

Taiwan consumer loans, which include housing purchases and renovations, climbed for 22 months through to May when they rose 4.5 percent from a year earlier to NT$6.85 trillion ($214 billion), according to central bank data.

Minister of Finance Lee Sush-der said March 2 his ministry will 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, based on data from Sinyi Realty and the Tsuei Ma Ma Foundation for Housing and Community Service, Taiwan’s top rental agency.

Meets With Banks

Housing, renovation and construction loans were the equivalent of 52 percent of Taiwan’s gross domestic product, the bank said in a June 24 statement announcing the new rules on lending in Taipei City and 10 suburbs within Taipei County. The concentration of lending in Taipei may undermine the effectiveness of banks’ risk management, it said.

Bank of Taiwan will ask its loan department to tighten scrutiny of loan applications, and demand more documents or lend less to borrowers who seemed suspicious, Bruce Yang, a spokesman at the state-controlled lender, said today. Mortgages made up 20 percent of the lender’s loan portfolio, or about NT$400 billion, Yang said.

The central bank said July 8 it met with 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 rules.

“It’s been hard for the central bank to prevent these actions even after the recent measures,” Perng wrote in the July 2 letter sent to all 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.”

To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net

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