Local property market may head for recession

By Yu-huay Sun, Bloomberg

TAIPEI, Taiwan News — Taiwan’s property market may go into a recession next year, as inflation and an economic slowdown deter buyers, a government report shows.

The property-market leading index, a gauge for conditions three quarters ahead, fell 2.96 percent in the April-June period from the previous three months, the Ministry of the Interior said in a report yesterday. The index tracks inflation, loans to the construction industry, gross domestic product, money supply and the performance of construction shares.

Most companies expect property prices to fall in the fourth quarter, according to the August survey by the ministry. The government last month cut its full-year economic growth forecast to 4.3 percent from 4.78 percent. The second-quarter expansion was 4.32 percent, the slowest pace in more than a year. The statistics bureau’s projected inflation rate of 3.74 percent for 2008 will be the fastest since 1994.

“The property market is likely heading into an obvious slowdown,” Ho Ming-chin, director-general of the ministry’s Architecture and Building Research Institute, said at a press conference in Taipei yesterday. “We suggest that market participants be more careful.”

Sixty percent of companies surveyed expected home prices to fall in the fourth quarter, compared with 7.1 percent that said prices will climb, according to the survey, which interviewed 192 property market related companies in August.

Property-market indicators “turned around” for the worse in the second quarter, prompting buyers to “hesitate,” Chang Chin-oh, land economics professor at National Chengchi University in Taipei, said at the same conference.

Building permits fell 5.3 percent in June from the previous month, after rising 8.8 percent in May and 11 percent in April, the ministry said.

Expectations the government of Ma Ying-jeou would boost real estate prices helped lift sentiment in April, Chang said.

“The force for the market to fall is very strong,” Chang said. “The chances for a recession in the market will increase next year.”

The 35-member construction subindex fell 39 percent this month, the worst-performing group on the Taiwan Stock Exchange. The benchmark TAIEX index dropped 19 percent.