The government’s planned tax on speculative property transactions has dampened market sentiment and is expected to trigger a price correction in New Taipei City (新北市), where home costs have surged to levels near those in the capital, analysts said yesterday.
Prospective home buyers are now taking a wait-and-see attitude in anticipation of price drops after the Cabinet on Thursday approved a bill to introduce a 10 percent tax on real estate resold within two years of purchase for investment purposes. The rate would climb to 15 percent of trading values if the property is sold within one year of purchase.
The levy, intended to stem property speculation, would spare properties intended for self-occupancy, inheritance or non-investment purposes, according to the draft act on tax levied on specific goods and services.
Buyers for pre-sale and newly completed housing units have plunged 40 percent, with transactions shrinking by 50 percent in Sinjhuang (新莊), Tamsui (淡水) Sansia (三峽) and Linkou (林口) districts.
Housing prices in those areas are approaching those in suburban Taipei City on strengthening public transport facilities and speculation that have sent costs in the capital skyrocketing and made them unaffordable for most people.
“Investors are fleeing the market, which is positive for the property market’s long-term health,” said Ni Tzu-jen (倪子仁), spokesman for the Chinese-language Housing Monthly (住展雜誌). “False demand cannot support the sector for long.”
The decade-high volume for pre-sale projects to be rolled out later this month — a traditional high season — reflected the developers’ wish to shun the tax rather than them having a bullish outlook, Ni said.
The government aims to implement the luxury tax on July 1, provided that the bill clears the legislature this session.
The cautious sentiment also weighed on commercial properties, whose prices repeatedly hit records in auctions for office buildings last year, thanks to excessive liquidity and low interest rates.
Domestic financial firms all aim to increase real-estate investment in the greater Taipei area, but to no avail because of scarce supply.
On Thursday, however, the auction for the fifth floor of a Taipei City office building at a prime location on Zhongxiao E Road Sec 4 failed to attract a single bidder despite a low floor price of NT$108 million (US$3.65 million).
Auction organizer Savills Taiwan Ltd (第一太平戴維斯) said it was better to put the product back on the market after the tax plan settled. Other auctions met the same fate or were canceled at the last minute.
Stanley Su (蘇啟榮), head researcher at Sinyi Realty Co (信義房屋), said while it was premature to gauge the impact of the luxury tax, it was likely to sink property prices by between 10 and 15 percent, on par with the tax rates.
Sinyi Realty saw its home-buyer numbers falling 20 percent, while sellers picked up by an equal amount for the past two weeks, Su said.
“Sellers in need of funding will soften prices to accelerate transactions as the planned tax will erode profitability,” Su said by telephone. “Home buyers, however, would prefer to wait.”
The tug of war will shrink -transactions with prices in New Taipei City and Taipei City suburbs seeing larger corrections because earlier price hikes were largely linked to speculation, he added.
Jeffrey Huang (黃增福), an assistant manager at Yungching Rehouse Group (永慶房仲集團), expressed a similar view.
Housing transfers have dipped 6 percent so far this month at the brokerage, while home supply has increased 20 percent, Huang said.
“Paradoxically, home buyers stayed flat as the tax plan drove up bargain hunters,” Huang said by telephone. “Surely, they will not rush to close deals.”
However, the property may not remain depressed in the long run, given the nation’s sound economic fundamentals and easy monetary policy.
Chuang Meng-han (莊孟翰), an industrial economics professor at Tamkang University, said the government must come up with supporting measures to show it is serious about reining in property prices.
Chuang linked property price hikes in recent years to a series of government measures to lure foreign funds and encourage capital return from overseas.
“Sizable funds have flowed to local properties owing to long-term asset allocation plans,” Chuang said. “The need will sustain property prices in prime locations where demand far outweighs supply.”
Ample funds, coupled with global “hot money,” have rendered tightening measures to curb real-estate prices in Hong Kong, Singapore and China futile, even though they have helped to cool transactions, Chuang said.
“The phenomenon is good food for thought, although we don’t know whether it will repeat here,” he said.
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