Taiwan moves to cool housing market

Govt mulling over tax reform to curb property speculation, rein in prices
By Li Xueying, The Straits Times, 12 May 2014

TAMSUI district, a former fishing town in New Taipei city, is famous for its spectacular sunsets and bustling night markets.

In the past decade, as it underwent redevelopment, it has also gained notoriety for its "ghost apartments" that remain dark at night - the result of investors, speculators and overseas businessmen snapping up multiple units and letting them lie empty.

No more, the government hopes. With property prices in and around the capital at record highs, it has announced new measures to cool the market in the Greater Taipei area - and hopefully anger over housing unaffordability, an issue some believe helped propel young Taiwanese to take to the streets during recent anti-government protests.

For the first time, the government is mulling over tax reform to penalise those with multiple properties, while offering sweeteners in the form of a campaign that rewards those who rent out homes to the elderly and disadvantaged at discounted rates.

The goal is to lower housing prices in the capital by 30 per cent in the next two years, said Taipei deputy mayor Chang Chin-oh in an interview with The Straits Times.

It is an urgent mission.

"Young Taiwanese feel that the future is very bleak when it comes to owning homes. No matter how hard they try, they will never be able to afford one before they die," he said.

"This has led to great instability within society."

Figures from the Ministry of Interior show that Taiwan's overall house price to income ratio is 8.4, which means that the average Taiwanese needs to save 8.4 years of his income to buy a home. This compares with four for Japan, 5.1 for Singapore and 14.9 for Hong Kong, according to an international survey by consulting company Demographia.

But within Taipei, prices have surged even more rapidly, by 63.4 per cent in the past six years. The median price has risen from NT$9,557 psf in 2008 to the current NT$15,657 (S$648) psf.

In 2008, Taipei's price to income ratio stood at 8.33. This went up to 15.01 last year. The ratio in New Taipei rose to 12.67. According to Demographia, the two cities rank first and third in housing unaffordability in the world.

Taiwan Premier Jiang Yi-huah has vowed to push the ratio in the capital down to 10:1 in two years.

Due to low interest rates and property taxes and a belief that home prices will continue to shoot up, cash-rich investors and returning Taiwanese businessmen who made their fortunes in China have rushed into the Taipei market in the past decade.

Today, of its 879,200 residential units, 60 per cent are occupied by their owners, with 20 per cent being rented out and 20 per cent lying empty, estimates Mr Chang. The last figure is up from 12 per cent in 2000.

Taiwan investors, explained real estate expert Chuang Ming-han of Tamkang University, do not like renting their properties out as yields are relatively low and they prefer the flexibility of selling when the price is right.

Meanwhile, stagnating average incomes mean that buying homes is beyond the reach of many residents. The island's average monthly salary slumped to NT$35,402, a figure last seen 16 years ago.

While some units stand empty, the number of Taiwanese in need of housing has reached 90,000 to 100,000 in Taipei, said Mr Chang.

To help right the equilibrium, tax reform - undertaken for the first time in some 30 years - will lead to a regime that distinguishes between home owners with different numbers of property.

Currently, all home owners in Taipei pay 1.2 per cent in tax on their property, whether it is their first or fifth home. The figure will be scaled up, reaching 3.6 per cent for fourth and subsequent homes, said the deputy mayor.

The Bill has undergone its first reading in legislature. It should be passed by next month, and the new rules should go into effect early next year, he added.

But the rules may have limited effect, said Professor Chuang. "It is not a big difference and will not affect the enthusiasm of investors, especially the speculators."

He calculated that the new tax on, say, a 120 sq m flat that is an owner's fourth property will be about NT$18,000. While three times the NT$6,000 now, it is still small change for the rich.

What needs to be done, he argued, is for the government to build public rental housing for locals. There are now only 14,000 such homes among the eight million units in Taiwan, comprising less than 0.2 per cent.

Another issue is that the rules on their own will be no panacea. Even if housing prices fall, this does not resolve the problem of stagnant wages - a tougher nut to crack.

But Mr Chang said he is hopeful that once the lure of property speculation is removed, more resources will be diverted to other parts of the economy.

"We are urging people to 'da fang ru gu' - to give up investing in the property market, and direct their energies to other industries, which will create more job opportunities and stimulate the economy."

DESTABILISING SOCIETY

Young Taiwanese feel that the future is very bleak when it comes to owning homes. No matter how hard they try, they will never be able to afford one before they die. This has led to great instability within society.

- Taipei deputy mayor Chang Chin-oh