A US-based financial consultant yesterday advised the government to address the stagnation of the domestic property market by introducing a new financial concept and product — home appreciation participation notes (HAPN), which he said would minimize risks for home buyers if the value of the property they purchase fluctuates significantly.
The notes lower the down-payment threshold for home buyers who relinquish a portion of their rights to the property’s future capital gains or losses to investors such as construction companies or banks, said Tyler Yang (楊太樂), president and CEO of IFE Group (安富金融工程集團), a US financial consulting company.
“Such notes facilitate better risk allocation for home owners, who are usually the most vulnerable in a market downturn,” Yang told a media briefing.
The concept is patented and has been approved by the administration of US President George W. Bush, although president-elect Barack Obama’s administration may re-evaluate the proposal next month, Yang said.
In Taiwan, if a house is priced at NT$10 million (US$299,590), a home buyer would usually pay NT$2 million in cash and borrow NT$8 million from the bank.
With the HAPN concept, however, a property developer may issue notes to raise a certain amount that represents the house’s potential gains, usually equivalent to one-third of the property’s value, or NT$3.7 million, before closing the deal.
The home buyer may then only have to pay NT$1 million in cash and borrow NT$5.3 million from the bank, but the buyer won’t fully benefit from any appreciation in the property’s price later on, Yang said.
At the same time, HAPN investors, including institutional investors, would shoulder greater losses than home owners if the property’s value dropped significantly, he said.
If no investors are interested in notes for a property, it should send a warning message to developers that they may have over-priced the property and that a price cut may be necessary, he said.
The proposal won’t cost the government a thing, he said.
Introducing the notes would require more deliberation, with preconditions such as reasonable property prices and the establishment of a transparent regional price index for housing.
Yang’s proposal has won endorsement from academics such as Chang Chin-oh (張金鶚), professor of land economics at National Chengchi University, Steve Lin (林祖嘉), professor at National Chengchi University and Hua Ching-chun (花敬群), an associate professor of finance and banking at Hsuan Chuang University.
Chang said they would urge the Cabinet to include the notes in its measures to bolster the nation’s real estate market.
Chang said most property developers and government officials from the Financial Supervisory Commission, whom they had visited earlier, had praised the proposal as “innovative.”
But Lin Tung-liang (林棟樑), deputy director of the commission’s banking bureau, said “such notes haven’t been issued anywhere in the world and certainly require further study.”