Taipei Times (TT): The government frequently seeks your opinion on housing policy. In your view, is Taiwan’s housing market healthy or unhealthy?
Chuang Meng-han (莊孟翰): The nation’s housing market is not healthy in that housing prices in northern Taiwan are too high. Price hikes are unreasonable when they exceed the pace of GDP growth. For the past decade, housing prices have soared 112 percent in Taipei City and 86 percent in New Taipei City (新北市). The economy did not expand that fast during the same period. The economy even contracted in 2009 after the global financial crisis.
Housing costs would be reasonable if they were between three and five times average household income, as is the case worldwide.
Photo: Fang Pin-chao, Taipei Times
Today, housing prices are 13.2 times of household incomes in Taipei City, with mortgage payments taking up 54 percent of disposable income, according to government statistics. The figures may even underestimate the real situation, as I believe housing costs are at least 20 times household income. The high housing prices in Taipei City have driven people to move to New Taipei City, pushing up prices there too.
TT: What are the main causes for the steep price hikes?
Chuang: The unprecedented long cycle of record-low interest rates is surely to blame, as is excess liquidity.
After the global financial crisis, central banks around the world printed money to stimulate economic recovery, driving a sizable amount of funds to China, Hong Kong and Taiwan. That calls for a remedy with an international perspective, a fact Taiwan’s government has so far failed to grasp.
The reduction of inheritance and gift taxes facilitated capital return from overseas and motivated people to turn cash into real--estate investments. National savings gained 52.7 percent from NT$20.61 trillion [US$715 billion] in 2002 to NT$31.47 trillion as of May this year, generating an additional NT$10 trillion in idle funds.
The nation’s warming trade ties with China have also helped fan the property fever. Land developers and real-estate brokers have forecast a price hike spiral and the public has apparently bought into that theory.
The trend is worrying in that housing prices accelerate despite the absence of major public construction projects or foreign investments here. That is not the case with Shanghai and other cities where foreign investment helps drive employment, wage growth and property prices.
In Taiwan, speculation and asset allocation have fueled the housing price hikes to a large degree, while domestic financial firms are increasing real-estate investments to digest their idle funds. The nation’s low interest rates also make land hoarding profitable, more than offsetting capital costs and tax expenses. While some rich parents buy properties for their children because they fear houses will cost more in the future, others buy houses to collect rent to support their finances in old age. These factors make a price correction unlikely, if not impossible, and those who plan to move out of Taipei for more affordable housing will find it difficult to come back, a situation even their children can’t reverse.
TT: Why are the price hikes primarily limited to the greater Taipei area rather than nationwide?
Chuang: The main culprit is the government’s longstanding unbalanced economic development plans for north and south Taiwan and between urban and rural areas. The government has failed to address this issue and I do not see a remedy in the short term or the long run. Compounding the problem is the wage stagnation which makes owning houses increasingly unaffordable and widens income gaps.
TT: Does Chinese capital also contribute to property price hikes in Taiwan?
Chuang: Not so much now, but its influence could be monumental in the future. On the surface, Chinese capital owns a total of 45 real-estate properties in Taiwan at present, but funds from Hong Kong and other places should account for more. The sale in October of a storefront on Zhongxiao E Road [in Taipei City] raised many eyebrows because the Hong Kong buyer paid NT$5.57 billion per ping, a record offer.
Some wealthy Chinese would like to fly in private jets and stay in their own homes here. A few rich Taiwanese are allowed to do that in China. Beijing may demand more market opening under WTO rules and the cross-strait Economic Cooperation Framework Agreement (ECFA). The government has to be very cautious given its limited number of bargaining chips and the nation’s small [geographic] size. A wrong decision could cause irreparable damage.
TT: Is the luxury tax helpful in curbing rising housing prices?
Chuang: The luxury tax alone cannot achieve the effect. Other measures are necessary if the government is serious about justice in the housing market. The government should also introduce market transparency rules governing property transactions, overhaul property taxes to reflect market value and strengthen infrastructure facilities nationwide.
Currently, property value as set by the government for tax purposes is much lower than market worth. The housing tax, for instance, should be at least 1 percent of real trading prices on all second homes. The existing rate is 0.1 percent for luxury homes in Taipei City. The government must also impose heavy fines on tax evaders and step up inspections to demonstrate its determination.
TT: How do you evaluate low-cost housing programs sponsored by different government agencies in terms of making the housing market fairer?
Chuang: They are not urgent or even necessary given the large number of unoccupied homes nationwide. At least 40 percent of newly completed housing in Tamsui (淡水), Sansia (三峽) and Linkou (林口) [in New Taipei City] is vacant. The government should conduct a survey and provide tax credits for leases to young and disadvantaged people. Under the arrangement, low-income people would be sheltered for certain periods of time and unoccupied houses can be digested. Permanent transfers of public land ownership will weaken the government’s ability to regulate the market if intervention becomes necessary in the future. In my view, housing programs involving leasing rights are better ideas, but they are less popular with the public. The government should not step back because of controversy linked to such housing projects.
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