Taiwan's stagnant property market is unlikely to receive any immediate boost from relaxed rules on foreign ownership because of poor rental yields in comparison to vibrant markets in Shanghai and Beijing, according to industry observers.
Lackluster market conditions are compounded by the lingering political uncertainty regarding relations with its giant neighbor, which are likely to keep multinationals cool on investing in the local real-estate market.
"The government measure is good news, but the question is how attractive is the market? How attractive is it compared with China?" said Derek Huang (
While the new regulations passed by the Cabinet on Wednesday made it legal for foreign nationals to purchase property for commercial use -- unlike previously where purchases could only be for personal use -- including residential real estate, factories, hospitals and offices, the main focus is likely the Taipei office market.
According to Hwang Bor-ling (
"The market scale is too small in Taiwan. Only Taipei is being considered by foreigners as an investment opportunity because that's the only city recognized as being internationalized," Hwang said.
But compared to Beijing and Shanghai, where rental yields are in the double digits, Taipei is far less attractive to multinationals, with rental yields averaging only about 6 percent, he said.
Rental yield -- which is the percentage difference between the capital value of the property and the annual rental return -- on office properties in the fourth quarter of last year was 14 percent in Shanghai and 17 percent in Beijing, according to a report by CB Richard Ellis.
The low rental yields are kept high because of the inflated costs of purchasing property in Taipei, where prices have remained unreasonably high for almost a decade following rampant speculation throughout the 1980s.
Colliers Jardine reported that the Taipei office vacancy rate increased from 2.83 percent in 2000 to 8.35 percent by the end of last year, with oversupply expected to continue until 2004.
Hwang said his company had attempted to attract Hong Kong Land, a major developer of commercial properties in Hong Kong's Central District, but the developer balked at the low yields here.
"With yields of up to 8 percent in Hong Kong, they will look for yields of at least 10 percent elsewhere," Hwang said.
According to Guy Wittich, chief executive officer of the European Chamber of Commerce Taipei, the step towards liberalization is welcomed, but said that it would probably not spur a sudden rash of foreign investment.
"Fourteen years ago we could have made some money, but now it's probably more cost efficient to rent," he said.
Whether foreign companies choose to invest in the local market may come down to how they view the future of Taiwan's property market and its overall economic environment.
"Whether the government can improve the economic fundamentals and investment environment is a major issue in attracting foreigners," Huang said.
"The investors understand there is oversupply and their decision to invest will depend on how they judge the potential for return."
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