Prof Says Housing Bubble on its way

A leading researcher on real estate in Taiwan has warned that the housing market is looking a lot like a bubble...

After two and half a years of brisk business, the Taiwan housing market, especially that of Taipei, appears to have inflated a major bubble, warned Chin-o Chang, professor of land management science at the National Chengchi University and director of the university`s Taiwan Real Estate Research Center, on April 24.

While publicizing a research paper during a press conference, Chang noted that Taipei`s housing prices have been bloated by 38% over the usual levels, meaning the existing average price of NT$537,000 per ping (one ping being 36 square feet) for pre-sold houses in the city should be cut to NT$333,000 when excluding the bubble factor.

The current bubble has been blowing up following the previous one from 1987-1991, when domestic housing prices were bloated by 47% over the "un-hyped" levels, which ensued an earlier bearish market that lasted 15 years.

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Chang pointed out that Taiwan`s home prices have surged 50% over the past two and a half years, when local incomes have inched up only 2%, meaning that many home buyers rely on sizable loans to acquire houses. In light of the potential bursting of the bubble and impact on housing prices, local buyers and banks would be well advised to be very cautious to purchase homes and extend loans at the moment, warned Chang.

The CNA via Yahoo News also described his presentation, adding more detail from his talk:

Taiwan's real estate prices, sustained by sound fundamentals, began to rise in the second half of 2003 following a series of SARS outbreaks, Chang said.

Taiwan's property prices continued to go up in 2004 despite relatively pessimistic sentiment in the market after the presidential election earlier that same year, he pointed out.

According to Chang, the influx of investment capital after the March 22 presidential election will only have a short-term stimulus effect on the real-estate market, and mainly on commercial and resort properties.

Short-term incentives may also prop up the saturated housing market, but the higher the price goes up, the bigger is the risk when the housing bubble bursts, Chang warned.

According to Chang, Taiwan's housing market risks becoming a bubble as the supply of private houses has exceeded the demand.

It will be useless even if Chinese capital were allowed to invest in the domestic real-estate market at a time when the market has begun spiraling downward afer an expansion period of more than three years, he argued.

He noted that an expansion period of two or three years is usually followed by a containment period of seven or eight years.

The story would not be complete without the obligatory death threat:

An academic who warned of a property bubble in Taipei in a letter to a newspaper editor April 12 has received a threatening letter telling him to "shut up" or a contract killer will be sent to murder him.

The Wenshan police station in Taipei confirmed Thursday that its officers were investigating the intimidation case.

Chang Chin-oh, a professor of land economics at National Chengchi University, warned property hunters in his letter to the editor that the property market in Taipei is showing signs of a bubble and that although the market is no longer flourishing, housing prices are still being maintained at abnormally high levels.

After the letter was published, Chang received a computer-printed letter from the "Greater China Real Estate Alliance," warning him to keep his mouth shut or his life will be in danger.

*sigh* In Taichung where I reside something like a third of all the dwellings in the city are empty, waiting for a land price rise that will never come. Want to see one possibility for Taiwan's future? A similar bubble recently blew in Shanghai....and in Shenzhen.

[Taiwan]