Construction shares tumbled yesterday over a government proposal to impose a luxury tax, including a heavy levy on short-term home transactions.
The building materials and construction sub-index closed down 3.85 percent, bucking the TAIEX’s 0.68 percent increase, Taiwan Stock Exchange data showed.
The Ministry of Finance on Thursday proposed imposing a 15 percent transaction tax if a second-home owner sells a property bought less than a year ago. A lower tax rate of 10 percent would apply for properties owned for more than a year, but less than two years.
The proposed tax, the latest in a series of government measures to curb real estate speculation, could dampen housing transactions, market watchers said.
“The tax plan, which still needs approval by the legislature, could weaken trading volume as buyers would stay on the sidelines on expectations that [property] prices fall,” Lee Jain-ming (李健銘), a researcher at Sinyi Realty Co (信義房屋), the nation’s only listed brokerage, said by telephone.
When transactions slow in three to six months, sellers will start to lower prices, Lee said, adding that some may opt to exit the market earlier to avoid the tax, triggering a selloff.
“The measure could help rein in speculation if the government taxes short-term home transfers based on their actual prices,” Lee said. “Currently, real figures are not available.”
Lin Chien-fu (林建甫), head of the National Policy Foundation and professor of economics at National Taiwan University, said the luxury tax was mainly aimed at cooling down the house market, which has soared irrationally for a while.
“A fall in the construction sector is normal, because it can’t rise nonstop, either in terms of share price or housing price,” Lin said.
If the proposed luxury tax could drive speculative capital from the real estate market to other Taiwanese industries, that would help boost the economy, Lin said.
In December, the central bank lowered the loan-to-value ratio for the second time to 60 percent, from 70 percent, for second-home purchases in the Greater Taipei area. Last month, the Ministry of Finance reinstated fines on idle and underused plots of land to discourage land-hoarding.
Earlier this month, the Financial Supervisory Commission tightened risk and capital requirements for land purchases by insurance firms to further prevent land-hoarding.
Lynx Chuang (莊文樹), deputy general manager of Giga House Co (台灣不動產交易中心), said housing transactions could plunge 30 to 50 percent.
“A tax of 10 to 15 percent would significantly squeeze profitability, driving investors out of the market,” Chuang said in a telephone interview. “The measure, whether it is finally adopted or not, would cast a shadow on the market’s outlook.”
The auction for part of a building on Renai Road Sec 2 in Taipei yesterday failed to find a buyer, with organizer DTZ attributing the outcome to the proposed tax.
The property, measuring 142 ping (about 469m2), includes the basement, ground floor and second floor, and was offered at a floor price of NT$150 million (US$5.04 million), DTZ said in a statement.
“Although several buyers had expressed an interest earlier, they have turned cautious because of the tax proposal,” DTZ said.
Still, it remains to be seen if the tax would really trigger a price fall.
Housing transactions plunged 30 percent in Hong Kong after regulators taxed short-term property transfers in November, but housing prices regained their growth momentum last month, said Chiu Tai-shuan (邱太煊), a spokesman for Taiwan Realty Co (台灣房屋).