As the housing market continues to struggle and the central bank intensifies its scrutiny on lending practices, a well-established construction company in Taoyuan has announced a financial shortfall, resulting in the suspension of 10 construction sites. Among these, two are public sector renovation projects, while the remaining eight are residential developments located in Taipei City, Taoyuan Zhongli, Longtan, and Hsinchu.

Most of these projects are small-scale redevelopment initiatives for aging properties, with limited units available for sale; some are still on the market while others are in the completion phase. According to Chen Bi-yuan, head of Gao Yuan Real Estate Appraisal, the real estate boom of previous years led to a surge in small redevelopment projects getting approved, but over the past 10 months, demand has waned, coupled with tighter bank lending regulations, leading to an increasing number of builders and contractors experiencing financial difficulties.

Chen noted that the central bank’s stringent lending controls extend to builders, implementing total lending limits and reducing land financing to 40%, while mandating construction to begin within 18 months or face loan recoveries and additional interest charges. Although construction financing remains at around 70%, banks have adopted a conservative approach under the central bank’s directives, resulting in strict phased disbursements, especially where sales rates are poor.

In the past, some builders created shell companies to sell properties, thus artificially inflating sales rates to secure construction loans, but banks are now closely monitoring these practices, making it more challenging to secure funding. Furthermore, banks generally calculate construction loans based on plots of 450 ping or larger, where costs can reach NT$20,000 or more per ping. In contrast, smaller redevelopment projects of approximately 100 ping are costly to build due to potential damage to neighboring properties and longer construction durations, often exceeding NT$30,000 per ping. Although smaller plots may superficially appear eligible for 70% financing, the actual amount may be much lower, significantly straining the financial viability of small-scale projects.

While reports of small builders going bankrupt and projects entering foreclosure have emerged, the concentration of mortgage loans still poses a significant risk within the banking system, suggesting that the central bank is unlikely to relax regulatory measures in the near term. Consumers are advised to thoroughly assess builders' financial standing and creditworthiness to avoid potential pitfalls.