Friday, February 11, 2011

Government takes steps to deter land speculation in an election year

l  Taiwan's Financial Supervisory Commission (FSC) has been busy meeting with management representatives from the island’s financial holding firms in the last few weeks, with the primary focus on ways to keep insurance firms from profiteering through idle land investments and driving up real estate prices in the island’s leading metropolis.

l  After the meetings, it became likely that the FSC will use regulatory tools to force insurance companies to release undeveloped land lots and deter further speculation in the real estate sector. For the moment, Taiwan’s insurance carriers can invest in real estate under the precondition that development of land must begin within two years of the purchase of land, and the yield of the investment must be the same as the interest rate of a two-year time deposit at the post office.

l  With both the legislative and presidential elections coming up in the next 14 months, the Ma administration is paying particular attention to the leading complaints from the public, with high housing prices often at or near the top of such lists. Therefore, how to keep the real estate prices down and housing affordable to most has become a top priority for the government.

l  In fact, the FSC is considering increasing the investment yield threshold by adding one percentage point to the two-year time deposit rate to deter insurance carriers from keeping purchased land idle. Moreover, the FSC is also considering raising insurers' risk-based capital requirement, so as to force insurers to sell some of their land holdings to boost their risk capital reserves.

l  For some insurance companies, contemplated measures by the FSC have apparently worked since plans will soon begin to develop idle land lots. If, and when, that happens, it will likely result in an oversupply of buildings—both office and residential, but with a lowered building occupancy rate.

l  Though such a scenario will not necessarily be positive for the local real estate market, it may prevent further escalations of housing prices, which is good news for the incumbent administration in an election year.

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