Recent Study: Taiwan Real Estate Report Q2 2014

From: Fast Market Research, Inc.
Published: Wed Apr 16 2014

Although we continue to forecast stability for the three commercial real estate sub-sectors we cover, office, retail and industrial, we are increasingly concerned about the downside risks posed by a correction in residential property prices.

Although we do not believe there is a bubble in the commercial real estate sector, the indicators are increasingly pointing to one in the housing sector, and our view is that there will be a correction before too long. While this will not, we believe, have a direct impact on the commercial real estate sector, as investment has been cautious of late, we are concerned of a possible contagion effect, depending on the extent of the correction. Impacts could be felt in the retail sector for example, if consumer spending and confidence fall, and more generally in terms of investor confidence in the wider market.

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We also highlight risks stemming from any sharper-than-anticipated slowdown in China. Taiwan and China are increasingly close, particularly in terms of business and tourism, and as such a slowdown could affect Taiwan's export-oriented economy, as well as limiting the spending power of hitherto high-spending tourists from mainland China.

On the plus side, however, we note the central bank's accommodative monetary policy, and believe that interest rates will remain low over the coming quarters, forecasting only one rise in 2014. This will have a stabilising influence on the real estate sector. Meanwhile, government regulations on the minimum yields pertaining to insurance company real estate purchases do not appear to by stymieing investment from that sector, with two notable purchases in late 2013. At the same time, a loosening on regulations governing insurance investment means that insurance companies can now invest in real estate overseas.

Demand for office space seems to be concentrated at the top end of the market, a trend that we see continuing, although the smallish scale of this demand means that we are not forecasting that this will lead to a significant rise in overall rental prices.

Despite our concerns, the retail sector is being buoyed by strongly growing consumer spending and an influx of tourists from China, boosting top-end retail.

Meanwhile, the industrial sector, in the longer term we are expecting a divergence in rental rates between low grade and premium properties, with demand increasingly centred on the latter and driving down rates for the former. Again, downside risks stem from China's economic situation.

Recent Developments

* Taiwanese insurance companies, previously only permitted to invest in domestic property, are now able to invest in real estate overseas. Although regulations mandating minimum yield levels for insurance companies investing domestically have come into effect, companies are continuing to invest in Taiwanese real estate.

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