Taiwan Today

The Central Bank of the Republic of China and the Council for Economic Planning and Development are studying the feasibility of credit limits and/or higher taxes to curtail real estate price hikes. Perng Fai-nan, governor of the CBC, said March 10 an increase in the reserve requirement ratio against bank deposits and selective credit controls could be among the options. Meanwhile, CEPD Minister Tsai Hsung-hsiung proposed heavier taxation on residential dwellings in which the owner does not reside. Perng declined to elaborate further before reporting related matters to Premier Wu Den-yih March 11. But sources said the central bank could address means to drain idle funds from the market and to restrict private banks’ mortgage practices. Unidentified executives from banks in the private sector were skeptical about any immediate introduction of higher reserve requirements given the negative impact of such a policy on the stock market, general lending business and the pace of economic recovery. This issue could be subject to discussion by the CBC’s board of directors at a quarterly meeting scheduled March 25. Yang Chin-long, deputy governor of the central bank, told the Finance Committee under the Legislature March 10 it is inappropriate to counter the real estate problem by raising interest rates. The real estate price boom is a short-term and regional phenomenon, while interest rate surges by the CBC could produce full-scale effects, he said. With regards to selective credit controls, unnamed sources said the CBC is considering limits to loan-to-value ratios and grace periods for mortgages. Real estate located in certain areas, with high value and for the purpose of investment, could be subject to such restrictions. Taking an example from Hong Kong, Yang noted that regulators may consider levying higher taxes on any property transaction that exceeds HK$20 million (US$2.58 million). A stamp tax could be imposed for ownership less than one year to prevent speculative trading. Meanwhile, Tsai of the CEPD said taxation on residential houses used and occupied as the owner’s principal place of residence should be light in order to reduce the public’s burden. But land and house taxes should be increased on houses that are purchased for the purpose of investment or speculative trading. He did not approve advancing key interest rates at present to combat the real estate price rally. A better alternative could be selective credit controls, Tsai pointed out. (HML-THN)