Thinking of buying a house in Taiwan, Best hold your horses for a while.

A few years ago when the Taiwan stock market took off, some people invested their winnings into another arena--real estate. "Land means wealth," and land will always be a sought-after commodity in densely populated Taiwan, so buying real estate is a sure-fire way to get rich. This money-spinner has worked quite well so far, but recently things have changed.

In March of last year the government adopted a tighter money supply policy which has kept mortgage rates high. A lot of capital has been tied up in the falling stock market, and there has been a big fall off in investment in the real estate market due to sluggish prospects for the economy. Consumers are taking the opportunity to hold back and allow house prices to fall, which has adversely affected advance sales of new housing as well as sales of older properties.

Some real estate investment experts say an advance sales completion rate of 60-70% indicates a buoyant market in which house prices will rise, and a rate of 40-50% shows a stable market. But if the rate drops to 30% it shows supply is outstripping demand, so house prices are bound to fall.

In 1987 and 1988 when real estate was booming, monthly advance sales of new housing in the Greater Taipei area averaged 70-80%. In this flourishing market the real estate companies often inflated prices even within a single day, producing a stampede of buyers anxious not to lose out and sending house prices skyrocketing to almost double their previous level. Last year supply exceeded demand and advance sales plummeted to as low as 40-50%, bringing a decline in house prices. This year the sales rate has hovered at around 20-30%.

According to figures compiled by Housing & Business Co., the sales completion rate for new and older housing in the first six months of this year has been less than 20% and rentals are at about 30%, resulting in a market flooded with sellers who cannot find buyers--in a word, the classic buyers market.

How far have house prices actually fallen?

Despite the low completion rate for advance sales of new housing, the fact that the land was often bought at a time when prices were booming, together with high advertising costs, have meant that construction companies have only limited capacity to absorb the development costs themselves. From the consumer's point of view, buying in advance and paying as the building nears completion offers an excellent way for salary earners to pay by instalment. Thus prices have only fallen by a meager 10-20%. Nevertheless construction companies tend to offer high-grade construction materials, interior decoration and home appliances in sales promotions to drive the sale completion rate up.

Older properties offer greater scope for reductions in price. People's capital has been wiped off in the stock market, interest rates have risen appreciably and turnover is sluggish, so the only way to sell is by lowering prices. Many vendors say to potential buyers "as long as you're serious about buying, the price is open to discussion." Those familiar with the housing market point out that you can generally slash the advertised price by half and negotiate on that basis, with most sales going ahead at about 70% of the asking price.

As long as the factors causing house prices to fall persist, according to Housing & Business public relations manager Mickey Kuo, the "freeze" is likely to remain at least until next spring. When prices will bottom out depends on external circumstances. Local estate agencies have been plunged into the "coldest of cold winters," and since last year about half of them have been forced to close down.

Although provincial banks have lowered their interest rates a notch (0.25%) as of mid-September and the Central Bank has leaked rumors of a relaxation in the money supply, it still hasn't been enough to halt the slide in house prices.

Yet the long-term analysis still indicates a steady rising trend. Each new peak is followed by a slight retrenchment, but once things take a turn for the better prices rise once more. So house prices may be in a trough preceding another rise. Since land is in limited supply and demand for housing is on the increase, real estate still offers a sound investment.

In the short term, however, house prices are unlikely to revive. If you're thinking of buying a house, it might be best to bide your time a little longer.