Commercial property

Who cares about COVID-19? Construction lending in Taiwan jumps to record levels

Soaring demand from property developers is helping lenders grow their loan books to record highs, as developers continue their land buying spree unfazed by the pandemic.

Banks in Taiwan are aggressively increasing lending to developers for residential and commercial construction projects, capitalising on soaring demand that remains resilient in the face of COVID-19’s impact on global economies.

An ongoing buying spree from the nation’s largest developers has pushed existing construction loans to an all-time high of NT$2.1 trillion ($69.9 billion) in February this year, according to figures by CBRE. And industry figures expect the buying to continue throughout the year, driven by the lowest office vacancy rates in two decades and strong demand for residential apartments.

“The banks are keen to lend, and developers are also keen to borrow,” says Chao-Hsiung Liao, spokesperson for the development department of Highwealth Construction Corp. The cost of land is low, and interest rates are low. They want to borrow.”

Highwealth and its subsidiaries bought the most land of any local developer in the first quarter of this year, according to global commercial real estate firm CBRE, buying NT$14.7 billion of land in Hsinchu and Taichung.

The biggest deal this year so far was the purchase by Nan Shan Life Insurance of a 16,000 square metre plot of commercial land in Taipei’s central Xinyi District for NT$31.3 billion. Nan Shan won out after bidding from four insurance companies.

Record Numbers

Real estate investment in land and commercial real estate by developers hit NT$236.3 billion in 2019, which was a staggering 111.3% increase on 2018 (2018 saw a 53.7% increase on 2017). In the first quarter of 2020, the total was 19% lower than the previous year, but still the second highest first-quarter total in a decade.

“Q1 2020 data showed developers remained in buying mode,” says Ping Lee, head of research for CBRE in Taiwan. “We expect they will continue to purchase development sites in good locations in major cities across Taiwan in the coming months, as they generally maintain a positive stance on the long-term prospects of the Taiwan real estate market.”

The state-owned Land Bank of Taiwan, Taiwan’s largest mortgage lender, told local media at the beginning of March that it was planning to aggressively increase land and construction financing this year. Chairman Hwang Bor-chang on March 4 said he expected construction and land financing to reach NT$385 billion this year–a 19% increase on top of last year’s 18.2% gain.

A core driving factor was Taiwanese firms re-shoring their production bases to Taiwan from China to avoid US tariffs, Hwang said. The spread of COVID-19 was also a factor in their desire to diversify production chain risk, he said.

State-run Hua Nan Financial Holdings also plans to increase lending by 4% to 5% this year, telling investors on March 9 it had already factored in a global slowdown due to the spread of the virus in its budget for the year.

A programme launched by the Ministry of Economic Affairs in early 2019 as US-China trade tensions rose has attracted at least 173 Taiwanese firms to invest NT$718.8 billion in local production, increasing the demand for office space in Taipei.

Coworking space operators like The Executive Centre, JustCo, WeWork and Regus have also been aggressively taking up office space, accounting for 20% of Taipei’s commercial leasing in 2019, according to CBRE.

Demand-Supply Dynamics

The dearth of supply is causing corporate tenants to postpone their relocation plans or look to new developments in previously industrial areas on the city fringe such as Neihu and Nangang, according to research by global real estate services firm Jones Lang Lasalle,

It is also driving down rental incentives and fuelling rent growth, with office rents in Taipei’s Grade A office market rising by around 3% over 2019. There is no short-term relief in sight, with no additional supply due to arrive in central Taipei for the next four to five years.

In September last year, China Petrochemical Development Corp acquired the unprofitable Living Mall in Taipei’s Songshan District through its development unit for NT$37.2 billion, and plans to demolish the mall and build four new 19-floor office buildings–one of central Taipei’s few new developments in the pipeline. The company expects to sell them during the presale period for NT$1.2 million or above per ping, the company told the media last year.

Taiwan has also seen a prolonged boom in the construction of relatively affordable apartments in previously undeveloped areas like Banqiao, Xinzhuang and Linkou, targeting young couples with one or two children as younger generations break from tradition to live separately from their older family members. Low interest rates have stoked demand.

Detailed figures provided by Highwealth show the company, along with its subsidiaries, has 72 residential and office construction projects around the country at various levels of completion, spanning around 408,000 square metres of land. The total estimated project value is NT$364.8 billion (US$12.1bn), with 30 of those projects more than 80% pre-sold.

"Our company has kept buying land because were selling a lot of these products,” Liao says. “Each year we sell NT$40bn to NT$50bn (US$1.3bn to US$1.7bn) worth of homes.”

Predominantly a residential developer, the company has also built offices in Taichung for a decade but finished its first project in Taipei’s Neihu district in 2016 and now has another Neihu office development underway.

“For offices, the demand is obvious. Throughout Taipei so many offices are dated and old, but companies haven’t moved because there is no new supply,” Liao says.

While COVID-19 had hit sales volumes, he said he did not believe it would have a “deep impact” on the real estate market, arguing a large proportion of his company’s apartments were sold to owner-occupiers rather than investors.

“The virus has arrived suddenly, but eventually it will be over,” Liao said. “Maybe it will be half a year, maybe a year, but eventually it will be over. During this period, people still have to live somewhere. People will travel less, go out and eat less, and spend less on expensive goods, but they won’t give up their homes.”

Taiwan has been praised for its exemplary handling of COVID-19, with 380 cases as of April 10 in the country of almost 24 million people, and no movement restrictions currently in place.

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