Taipei Times: How do you think Taiwan’s real estate market will fare in the second half of the year, given the impact of the luxury tax, the nation’s opening to independent Chinese tourists and various economic fundamentals?
Lai Cheng-i (賴正鎰): I believe the sector will see stable growth in the next three to five years. Interest rates remain the No. 1 influence on the sector. Today, the interest rate on housing mortgage loans remains low at about 2.5 percent a year and such low rates make home purchases practical and desirable.
China, which accounts for 40 percent of Taiwan’s exports, is expected to continue to post strong economic growth, even though Europe is plagued by a debt crisis and the US recovery is staggering.
More hot money may flow to Asia to take advantage of the region’s fast-growing economy.
Foreign investors are seeking opportunities to cooperate with Taiwanese firms in jointly tapping China’s [property] market.
All these are positive signs for the property market.
The only downside risk could come from the government as reflected in the introduction of the luxury tax last month to curb housing prices.
It was the new levy that made land developers more cautious about launching new construction projects last quarter.
Revenues from new construction projects totaled about NT$800 billion (US$27.72 billion) last year. Transactions are likely to stay flat this year because of the three-month lull. Without the tax, they would have hit NT$1 trillion.
TT: Are housing prices in Taiwan unreasonably high — many people are complaining that they cannot afford to buy a home?
Lai: That is not true. Only housing prices in Taipei and parts of New Taipei City (新北市) have picked up significantly. I don’t understand why people have to own houses in Taipei City, especially in prime locations such as Da-an (大安) and Xinyi (信義) districts.
The housing units we have built in Taichung average between NT$130,000 and NT$140,000 per ping. Second-hand homes can even cost between NT$90,000 and NT$100,000 per ping. Housing prices in Yunlin, Chiayi and Tainan counties are even lower.
The government’s unbalanced development plan is responsible for this price differential as it has utilized most government resources in the capital, financially and politically.
It could address this issue by strengthening infrastructure or building mass rapid transit systems in different parts of the nation, to encourage people to move.
That is why some people have said the government should move the capital to central Taiwan and relocate technological and industrial firms to southern Taiwan.
TT: That means we may see housing prices in Greater Taipei climb higher despite the introduction of the luxury tax?
Lai: Prices are determined by supply and demand. We have 50 people hunting for vacant plots in the Greater Taipei area, but we can only find two plots a year for development.
Scarce supply fuels the need for urban regeneration, but it usually takes five years or longer to finish a project. This limited supply makes a price correction unlikely in Taipei or New Taipei City.
In my view, it is healthy for housing prices to increase 5 percent annually.
The government’s attempt to curb price increase will only delay price hikes as shown in recently released housing price data and it is unlikely to have a more long-term impact.
TT: What plans does the Shining Group’s (鄉林集團) Shining Building Business Co (鄉林建設) have for this year and next year?
Lai: We have operations in Taiwan and China. Domestically, the company is looking to roll out new construction projects worth between NT$30 billion and NT$50 billion a year. This year’s target is set at NT$30 billion and it will be the same next year. About 80 percent of the construction projects this year will be in Taipei. All the projects are upscale housing units, targeting wealthy people at home and from Greater China.
In China, we aim to launch NT$100 billion in land development projects every year and to build branches of our six-star hotel The Lalu (涵碧樓) in 23 Chinese cities. The hotel construction project in Qingdao will be completed next year and new construction plans in Nanjing and Guilin will begin later this year.
TT: How much are Chinese homebuyers contributing to Shining’s revenue?
Lai: Since the ban [on Chinese buying houses in Taiwan] was lifted in 2002, Taiwanese firms have sold only 45 housing units to Chinese and none of those was built by Shining. I expect the number to increase to 200 by the end of this year because of the opening to independent Chinese tourists.
I do not think that the fact Chinese are only allowed to live in Taiwan four months a year will reduce the appetite of Chinese investors for local real estate. Many of them are rich, need to diversify their asset portfolio and they are bullish about Taiwan’s property market.
TT: Will more Taiwanese capital flow into China after the government removes the US$50 million cap on single project land development investments?
Lai: There is no reason for this to cause worry in Taiwan. For most Chinese investments, we have only 30 percent of funding on hand and borrow the rest from Chinese lenders. I urged the government to relax the investment rule because development projects in China usually involve amounts larger than US$50 million. The deregulation will give domestic land developers a freer hand in competing there. Companies will wire their earnings back to Taiwan at a later date.
TT: What do you think the government can do to achieve a fairer housing market?
Lai: The government could learn from Singapore by turning public land into affordable housing units for low income households. It could also lease housing units to those who can’t afford mortgage payments.
The so-called fair housing project in Linkou is quite expensive, priced at NT$150,000 per ping. In my view, NT$80,000 to NT$100,000 per ping makes more sense.
However, the extension of the mass rapid transit system to Taiwan Taoyuan International Airport makes it more practical for people to own a house there without having to give up their jobs in Taipei. I believe such programs could be applied in other parts of the nation at some future date, to great effect.
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