Taipei Housing Prices to Remain High, NT on its way up

President Ma came to power strongly backed by foreign financial interests who also saw Taipei's real estate market as a good investment possibility. In the latter choice they were smart. From the China Post:

Prices of luxury apartments and office space in Taipei City's prime locations will continue to be high in the short-term, due to a strong rise of the local currency, analysts said yesterday.

The Taiwan dollar (TWD) has appreciated by a significant margin over the last couple of days, due to an influx of hot money into Taiwan as well as other parts of Asia, on the ultra-loose monetary policy announced by the United States.

........

According to a recent survey of My Housing Magazine, as much as NT$109.5 billion worth of new apartments will be rolled out in northern Taiwan in November.

Institutional investors pointed out prices of luxury mansions and office space in prime areas of Taipei City will continue to be high, due to several factors besides a rising TWD.

Luxury mansions in Taiwan are mostly sold at NT$1.8 million to NT$2 million a ping, far less than the NT$7.5 million to NT$12.5 million in Hong Kong. Each ping is 3.3 square meters.

The article also observed that the wealthy have plenty of cash on hand, and that the government is no longer selling state-owned land. That restriction on supply has, as many foresaw, helped to sustain high prices in the Taipei market -- it is difficult to avoid concluding that keeping prices high is the reason for it, in fact. Yet another factor keeping real estate costs up is the expected increase in demand for office space as Chinese and foreign investors set up shop in Taipei to take advantage of ECFA.

A high NT (it hit 30 to the dollar last week) threatens Taiwan's exports by making them more expensive. To counteract the inflows of cash, the Taiwan Central Bank flooded the market with NT last week:

Sales of the island’s dollar failed to prevent the exchange rate from closing at a two-year high as all of Asia’s 10 most- active currencies rallied following Japan’s first cut in interest rates since 2008. Taiwan’s central bank last week raised borrowing costs for the second time this year and foreigners have pumped almost $3 billion into local shares since the start of September.

Some analysts are predicting that the Taiwan dollar may hit 29.75 by the end of the year. Economic growth and a rising NT are masking an unanticipated fall in exports, a report on Thursday noted:

Taiwan's export growth slowed for the second straight month in September and was much lower than economists had forecast.

The country's shipments grew 17.5% year-on-year in September, slower than the 26.6% increase in August, data from the Ministry of Finance showed Thursday. Economists had expected the growth rate to remain unchanged from the previous month's level.

Meanwhile, growth in imports outpaced exports by rising 25%, following a 28% gain in the previous month. Import growth also fell short of expectations of a 30% increase. Total exports amounted to US$22.4 billion during the month and imports totaled US$20.6 billion.

The good news is that exports to the major areas of Europe, China, and the US are all rising, and that orders are also booming:

Data from the Ministry of Economic Affairs released last month showed that Taiwan's export orders, an indicator of the Island's export performance in the coming months, rose 23.3% year-on-year to US$34.88 billion in August, a record-high, beating economists' expectations. Taiwan's economy relies heavily on its export sector. In the second quarter, the economy maintained its double-digit growth on the back of strong exports, growing 12.53% annually. The growth, however, was slower than the 13.7% expansion in the previous quarter.

All this positive progress on the economic front has yet to translate into advantage for the KMT at the polls.
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Inflated Expectations

Taiwan and China are back together exploring for oil in the Taiwan Straits, according to recent news reports. And United Daily News (UDN), a paper tightly linked to the KMT, reported that Hu of China had invited President-elect Ma to China for talks. The Olympics is going to make a great backdrop to the visit that Ma promised he wouldn't be making...though KMT officials themselves dismissed such talk. Direct flights aren't expected until next year. Whatever the inflated expectations of some, reality is expected to move more slowly...

...but not prices. Sticker shock: went to our usual volume retailer the other day, only to find that the bag of wheat flour we used to buy for $38 is now $53. Gasoline is outrageous -- we take scooters everywhere now. Imported stuff is skyrocketing -- brie I used to enjoy at $99 is now $189, cheap smoked processed cheese from Germany rose from $125 to $165 at the local supermarket. The Central bank said inflation was near 4% in both Feb and March of this year...

One solution to the problem of inflation is to let the NT dollar gain in value. For most of the ROC's brief existence on Taiwan the NT dollar has been more or less pegged to the US dollar. Indeed, last week Goldman Sachs predicted the NT would continue to rise:

The New Taiwan dollar may advance to an 11-year high in six months as the central bank allows further gains to stem inflation, Goldman Sachs Group Inc said, raising its forecast for the currency.

The NT dollar may strengthen 6.3 percent to NT$28.5, the world’s biggest securities firm said, revising its earlier forecast of NT$30.50. The currency has advanced 6.4 percent in the past three months, the best among 10 most-active currencies in Asia outside Japan.

“The central bank will likely utilize currency appreciation as another policy tool in combating imported inflation,” Goldman’s research team led by London-based Jim O’Neill wrote in a monthly global report received by Bloomberg today. “The interest-rate differential vis-a-vis the US dollar has become more favorable.”

Letting NT rise would be a quick way to increase the purchasing power of Taiwanese and enable locals to feel they have more money in their pockets. It would make imported goods cheaper. The negative side, of course, is that it makes Taiwan goods more expensive in world markets, forcing exporters to slash costs or move. It also has another pernicious effect, noted last week in a long commentary in the Taipei Times:

Even more serious is that when the nation’s currency appreciates against the US dollar, government and private assets denominated in US dollars suffer from exchange loss with their decrease in value.

Inflation may well become the number 1 challenge for the incoming Ma administration, since the current government has announced that price freezes on gas and electricity will be lifted on May 20, the day Ma is sworn in.

[Taiwan]