A real estate bubble might be on the horizon for Taiwan, if house price increases continue.

According to Taipei firm Sinyi Realty Estate, house prices were up 19.97% (18.46% in real terms) during the year to end-Q1 2010. Taiwan had the third highest increase among countries surveyed by the Global Property Guide, behind only Hong Kong and Singapore.

Taiwan's property market felt the global financial crisis in Q1 2009, but rallied in the next quarter and has been going up ever since. It expects a boost thanks to closer economic ties between Taiwan and the People's Republic of China.

Several economic cooperation treaties between the two countries have contributed to the rise in house prices. Even with the rise, Taiwan's house prices are generally more affordable than those of the PRC and Hong Kong, and buyers have rushed in to snap up properties. Record low interest rates are another factor in the market's surge.

Government measures to prevent a housing bubble include implementing stricter credit procedures, increasing the supply of low-cost housing and discontinuing the sale of government-owned lands. The Ministry of Finance is also contemplating the implementation of a progressive real-estate tax system.