According to My Housing magazine, the average price of housing under construction in Taipei City reached NT$599,000 per ping (3.305 square meters) last year before falling to NT$576,000 per ping during the first two quarters of 2009, due to the financial crisis.

Prices have recovered in the third quarter, however, reaching a record-high of NT$601,000 (US$18,674) per ping, according to a poll released by My Housing last month.

Average prices for pre-sold apartments even reached NT$908,000 per ping in Taipei's upscale Daan district, the survey found.

The fourth quarter could see an equally sharp rise if residential property transactions are any indication. According to a survey by Sinyi Realty Inc., Taiwan's biggest property broker, the volume of home purchases in Taipei rose 7.1 percent in October compared to September.

Many industry insiders believe that the conditions fueling the recovery are unlikely to change in the near term and believe the market will maintain its momentum into the future.

"The boom in the housing market is fueled by low interest rates, which give business conglomerates and speculators leverage to play the market, " said Stanley Su, a senior researcher at Sinyi Realty.

Taiwan's central bank has kept its benchmark discount rate at a record low of 1.25 percent since February, making real estate a far more attractive investment option than time deposits or bonds.

Other real estate brokers have attributed Taipei's rising housing prices to Taiwan's surging stock market, reduced estate and gift taxes, an easing of cross-Taiwan Strait regulations and a lack of confidence in derivatives or other sophisticated financial instruments.

"The ever-closer trade ties with China have surely given a boost to the property market, " said Nii Tzu-jung, a My Housing executive.

Abundant liquidity and huge capital inflows have also positively impacted market sentiment, Nii added.

Chao Teng-hsiung, the chairman of Farglory Group, one of Taiwan's leading property developers, believes those factors will drive growth in the future.

Chao said he expects sales to boom when the property market is opened to Chinese buyers.

Memorandums of understanding (MOUs) on financial supervisory cooperation signed by Taiwan and China on Nov. 16 were the first step in opening the market, but an economic cooperation framework agreement (ECFA) between the two countries expected to be inked next year is still needed for a wider market opening.

The MOUs, which will take effect within the next 60 days, will allow each side to set up bank branches in the other's territory, and will allow China's qualified domestic institutional investors (QDIIs) to invest in the Taiwan stock market.

Chinese bank branches in Taiwan will also be able to offer mortgages to Chinese and foreign investors in Taiwan, which will help liberalize Taiwan's mortgage market and give more options to prospective home buyers, according to Kevin Peng, CEO of Taiwan Realty.

Chao speculated at an investment forum Nov. 11 that the price of domestic housing could rise 5 percent-10 percent annually, and even up to 50 percent in Taipei City within 3-5 years of the ECFA signing.

Tayher Lim, an analyst with CLSA Asia-Pacific Markets, one of Asia's leading brokerage and investment groups, forecast earlier this month that Taiwan's residential housing prices could rise 15 percent next year, higher than in Hong Kong, Singapore and China, because the limited amount of land in the government's hands could lead to a further supply squeeze.

The increasing number of potential buyers and smaller plots of land being auctioned off have led to stiffer competition in Taipei, Lim observed.

He said rebounding domestic consumer confidence and an increasing number of would-be buyers generated by the government's more liberalized economic policy toward China will continue to boost the Taipei market.

The outlook for Taiwan's commercial property market is also bright because of closer ties with China, accrding to Sinyi Realty Assistant Vice President Ho Wei-hung.

Ho contended that despite limp demand for office space in the present recession, activity in Taiwan's commercial property market has remained brisk due to the rosy long-term market outlook as investors anticipate an influx of funds into the market following the signing of the MOUs with China.

Despite the optimism, however, a number of factors could conspire to derail the continuing boom foreseen by industry insiders.

According to a survey published earlier this year by Chang Chin-oh, a professor of land economics at National Chengchi University (NCCU) , residential property prices in Taipei City have surged by 50 percent over the past three years, while average local household incomes have grown by only 2 percent over the same period.

Those trends are not sustainable and can be traced directly to speculation driven by expectations of future Chinese investment, Chang argued in a recent interview with CNA.

Deals by speculators accounted for at least 50 percent of residential real estate transactions over the past three years, based on information from private channels and realtors, according to Chang.

He predicted that because housing inventory far exceeds demand, the market will enter a period of correction next year and will adopt a downward trend over the long-term unless the economy, the unemployment rate and disposable incomes improve.

Chang added that government initiatives to curb speculation and keep housing prices down so that average citizens can afford to own their own homes could also put a damper on the market.

Tsai Hsung-hsiung, chairman of the Cabinet-level Council for Economic Planning and Development (CEPD), said earlier this month at a legislative session that the government is considering an overhaul of property-related taxes, including levying a capital gains tax based on actual market transaction prices and increasing taxes on apartments that are not lived in to stamp out real estate speculation.

In an effort to avoid a real estate bubble, Perng Fai-nan, the governor of the Central Bank of the Republic of China (Taiwan) , has instructed state-run banks to tighten lending risk management and cautioned them against the overheated property market in some areas.

But Perng denied he is mulling raising interest rates or using other monetary tools at his disposal to help drive down housing prices.

Finance Minister Lee Sush-der also said banks should tighten lending on luxury homes, which he classified as housing units commanding prices exceeding NT$50 million.

That proposal spooked the market, forcing Premier Wu Den-yih to say later that the government will not consider levying higher taxes on upscale properties unless the economy and the well-being of the general public improves markedly.

Instead, the government will seek other strategies to counter the high cost of housing in Taipei, such as urbanization and rezoning, to increase the supply of construction land in urban areas.

Wu recently suggested at a Cabinet meeting that the government build 5,000-6,000 cheap or mid-priced houses for young or first-time buyers close to stations on the future Mass Rapid Transit line linking Taipei and Taiwan Taoyuan International Airport.

Regardless of what measures the government adopts, NCCU's Chang estimated that those policies and oversupply in the market could send housing prices in Taipei down 10 percent to 20 percent next year.

Property developers, however, will continue to lobby the authorities not to make any moves to restrain price growth.

Lai Cheng-i, chairman of the Council for Industrial and Commercial Development (CICD) and president of property developer Shining Group, told Wu at a luncheon earlier in the month that measures to restrain rising prices in Taiwan's property market are not necessary and urged him to stick to market mechanisms.

"Property in Taiwan is still attractively priced compared to that in Hong Kong and other Asian cities," Lai said.