Housing-industry support measures fail at building confidence

PUBLISHED : Wednesday, 06 January, 1999, 12:00am
UPDATED : Wednesday, 06 January, 1999, 12:00am

Agovernment effort to boost Taiwan's lagging housing construction sector and lift domestic demand has met with a mixed response. Many analysts question its effectiveness in reviving the island's depressed property market.

Central Bank of China (CBC) governor Perng Fai-nan and Finance Minister Paul Chiu Cheng-hsiung, perhaps hoping to impart some New Year's cheer for the property market, announced on December 30 a set of 'measures to revitalise investment in the construction industry.' The package allocated NT$150 billion (about HK$36.06 billion) in postal savings funds into low-interest loans for those buying new housing units or their first homes.

Also included was a two-year hiatus on both national housing construction projects and a scheme to build low-cost public housing by state-owned Taiwan Sugar.

The most evident perk to prospective homebuyers in the package was a provision that any buyer of a new home can this year secure up to $2.5 million in financing at a guaranteed 5.9 per cent annual interest for up to 20 years.

Mr Chiu said the new package would prompt consumers to purchase existing units through the low-interest financing and tax deduction and 'make the economy more vibrant' by helping the 'locomotive' construction industry with its strong backward linkages in sectors from building materials to appliances.

Mr Chiu added that early action to rescue the housing construction and property sector could avoid a costly bailout later, citing the 60 trillion yen (about HK$4.12 trillion) price tag for Japan's bailout of its construction sector.

National Taiwan University (NTU) economist Professor Hsu Chen-ming said the construction industry package was linked with other recent measures such as the cabinet's $1.4 trillion plan to spur domestic demand, November's measures to assist financially troubled enterprises and a $200 billion stock-market stabilisation plan.

But several analysts of the island's property sector expressed doubts that the prescribed medicine would cure the long-festering ills of the housing construction sector or deliver a genuine boost to the overall economy.

National Chengchi University economist professor Lin Chu-chia said: 'The most serious problem lies not in the estimated 200,000 or so 'surplus' housing units now on the market but up to 800,000 completed housing units that are still unoccupied and present a huge interest burden on companies and a massive waste of resources.

'Simply encouraging families to trade old homes for new will not resolve this problem nor really have a productive impact on the economy.' His colleague at the university, associate professor Lai Tsung-yu, said: 'Whether the construction industry can recover depends on consumers, and thus related businesses must be flexible in lowering housing prices.

'We also need to adjust the erroneous land-use policies that helped to lead to this excess.' NTU economist professor Lin Shang-kai said: 'Just like with a previous plan in 1996 that offered $80 billion in low-interest loans, this plan won't be very effective as the reason for the huge oversupply of housing units is that their price is too high.' Moreover, he said, the government's expanding list of support packages might have an opposite effect on investor confidence to that intended.

'The announcement of each new plan only confirms public fears that the economy is in bad shape,' he said.