Had an interesting chat with my friend. She was complaining that the mortgage rates in Taiwan rose from 1.3% to 1.5% and now she can barely afford to pay monthly premiums on her 30-year mortgage.
I imagine a lot of people are in similar positions in Taiwan - they bought into the housing bubble and live month to month on their paycheck to pay down premiums. And the government is probably keeping rates low and devaluating TWD in order not to cause widespread short sales, foreclosures, and panic. If mortgage rates do go up in Taiwan, a lot of people may lose their homes.
I asked my friend what would happen if the rates went from 1.5% to 3% and she said that’s impossible, and if that happened she’d lose her home. I told her it already went above that in the states, and she said that’s because it’s the states, not Taiwan. It’s this kind of attitude that causes a housing bubble to pop if the rates do go up.
TWD/USD is already down almost 20% over a year. How much more before the government starts to raise rates in Taiwan? 35 TWD per USD?
My friend works in a bank. She said that when the mortgage rates went up, a few of her coworkers were basically zoned out wrecks for the day. And it is only just starting
From my experience in Australia… most people will spend the most they can afford in monthly repayments. They often don’t actually consider the sticker price of the house. Or the possibility of interest rate hikes. Especially when buying at presale.
What’s more shocking to me is that the bank didn’t consider this when lending the money in the first place! It should also be the banks duty to check this!
It just sounds insane. I got my mortgage at somewhere within my firing range of my rent. Even if it goes up and I take a haircut, it’d only cut into luxuries.
Well… here’s to hoping there’s a fire sale at the place I like.
It has been an era of zero interest rates for nearly a decade, so it was not going to last forever. Those who can’t manage moderate variations likely should have stuck to renting.
Just got a 10-year fixed for just over 2 percent but required almost 50 percent down. Hope to ride inflation and pay off in less.
many companies like a weak TWD, but i dont think it will reach 35. I believe the gov has a band they allow it to fluctuate within.
raising interest rates might cool the housing bubble, but i dont think it will have a massive impact. Even If a 30 million apartment in my neighborhood drops to 25 million , its still 10 million too much
I had lunch with some top managers at my company the other day and they were trying to convince some other guy to buy a second home. The argument that “housing prices can only go up” came up, by someone who I would consider to be intelligent. Well, it smelled a lot like 2008.
1989 I bought a house in the U.K., bank gave a 100% mortgage loan on a letter from a friend, building company manager that said I worked for them, earned x amount. That easy! Was second time I had got mortgage loan this way.
BUT major recession came over from US and bang ÂŁ67500 valued home dropped in value to ÂŁ42000, my mortgage rate rose from ÂŁ400 a month to ÂŁ750. Also my wife was pregnant .
It’s happening again, don’t know if will affect Taiwan as badly.
I hung it out was hard! 15 years later sold it for ÂŁ152000.
I am also surprised at how some Taiwanese seem to think Taiwan rates cannot go up much. Government and central bank are between a rock and a hard place. Does anybody know how separated these functions are in Taiwan?
Inflation may become an issue maybe later next year. Also if the currency depreciates too much the stock market may crash due to a flight of capital. If the stock market crashes that will ruin many people, especially the elderly.
The alternative is to raise rates and the housing market may crash.
Taiwan has some of the most expensive housing (as defined by per capita against income and affordability) in the world. I’ve seen prices go from $300,000 US for a 4 story home to $1.5m US for the same place in the space of 20 years. There’s no actual basis for such a rise. Wages certainly haven’t risen by any substantial amount. You used to be able to buy apartments for $5m Nt that were quite reasonable. Now the asking price is $20+m Nt.
The only reason why it hasn’t popped is because family help each other out. So there’s a lot of hidden debt. The banks don’t care so long as the loan repayments are being made.
As for interest rates your friend is right. There’s much less chance of rapid rises happening in Taiwan because the government would recognize external influences on the current inflation rate. Places like the UK US and Australia seem detached from reality in that sense. No amount of increasing reserve bank interest rates will curb the current inflationary pressures because they are external and outside of their control.
TW has very random regulation for the financial sector regarding rates, currency control and then bank’s lending.
The Central bank is like this terra nullius, doing its own thing for foreign exchange regulations and currency issuance (then the interest rate is related to this), but has no oversight on banks’ practices (besides the aforesaid FX regulation) since that’s exclusive responsibility of the FSC.
Another of the many quirks of this country, and creates a few inefficiencies,
I’m no expert so I’m curious of your take. So do you think the central bank will be forced to raise rates eventually due to external forces or is Taiwan pretty walled off from the worlds inflationary issues and will keep a low rate?
I would think keeping rates low would devalue the currency
The Taiwan dollar is linked to a whole bunch of things. Like profits on super conductors and semiconductors and various other patents that the government holds. Someone else complained about how the Taiwan government acts like a business in competition with certain private sector corporations.
So long as people keep buying TVs and lcd fitted screens and other products the Taiwan government will continue earning royalties. Then there’s taxes on top of that for the local market.
Housing itself is quite small as part of the economy. Whereas in western countries the number of defaults are rising due to the reserve bank interest increases as a result of inflationary pressure. Taiwan has identified that these pressures are external and outside of their control.
They will watch as the US UK and Australia’s housing markets start to lose value and possibly deflate. China is in the same basket except worse. Increasing reserve bank rates was predictable because of all the money that many countries pumped into their economies due to Covid.
Oddly enough most of that money went to corporations that then announced record profits (even some airlines). And most of this current inflation can be linked to corporate profits.
Taiwan didn’t really follow these countries. Because there wasn’t really that much disruption because Taiwanese had the experience of SARS to fall back on and had been preparing for a pandemic outbreak.
So they don’t need to increase reserve bank interest rates as aggressively as what we are seeing other countries doing. The economy is still ticking over. People are still getting about. Companies are still functioning. They might go up a few more basis points however it will be a more cautionary approach.
And don’t forget that the people pulling these levers in Taiwan are actually educated people with Masters and doctorates and are specialists in their fields. Whereas in many western countries these reserve banks are filled to the brim with party affiliated hacks. In Australia they elected a centrist government that is despised by the obscenely wealthy. In the US Biden was elected. In the UK it appears as if the Tories will lose power at the upcoming election.
It’s not uncommon when Conservative governments lose power that their followers sabotage the economy in order to punish the majority for voting them out.
Taiwan has it more closely controlled and more intertwined with fiscal policy. This has also helped them weather inflation… so far… However, I don’t see it lasting. Interest rates will have to increase soon (by a lot).
ÂŁ67500 valued home dropped in value to ÂŁ42000, my mortgage rate rose from ÂŁ400 a month to ÂŁ750. Also my wife was pregnant .