Sat, Jan 21, 2012 - Page 8 News List


Housing bubble

In response to Michael Turton’s brilliant and well-researched letter, I would like to chip in with my expertise on the Taipei property market and try to explain why there is a housing bubble, but no social housing, in Taipei (Letter, Jan. 17, page 8).

First, there’s the concept of “mean reversion” that most Taiwanese investors, unlike FINI (Foreign Institutional Investor) funds, don’t seem to understand. People forget that the construction companies putting up these massive apartments have had gross margins of more than 50 percent in the last few years, putting cash in the pockets of the 1 percent and some lucky shareholders, a sure sign of mal-investment.

And what were these builders building? They’re building palaces for the mega-rich with marble walls, full-wall mirrors, large custom bathrooms and more. In some cases, four families could live fairly comfortably in one apartment. These people who think they are investing are really only speculating.

My chartered financial analyst and equity investor friend, “Mike,” went out to look at some places and he said, “they’re all super-nice, but way out of my budget.” If he says that, single and successful as he is, it is clear that there is a problem with housing in Taipei. I rent a rooftop bai-bai temple for NT$9,000 a month and consider myself lucky because my landlady living downstairs is bearish on renting it to a local, haha.

A housing “investment” that you don’t live in, unless you rent it out, is a risk. A big one. If you don’t find a buyer and sell higher, guess what you get? Pay attention to the housing catastrophe in China to see mal-investment everywhere.

What angers me is that every single law and project was approved by Taiwan’s incompetent carpetbagger government, with no consideration for the poor and, in an increasing number of cases, the environment.

Turning back the clock, I would have mandated that all new Taipei City buildings come with at least six floors of modest, but complete small apartments in a walk-up with nice balconies, the rest being up to the builder, and with an open-to-all pool, park and fitness center on each roof, loaded with solar power panels. Young, healthy singles or students could rent smaller apartments on the fifth and sixth floors, with families and the elderly below.

This building would have small shops on the bottom available for rent at reasonable rates. If all the recently-built super towers were like this, the price for retail space would not be going up. Don’t forget that Taiwan’s insurance industry is getting 3 percent returns on rent. With housing like I’m describing, if you build it, they will come.

The corrupt 1 percenters in the legislature have always passed laws that distort the market in many ways, allow land grabs at times just before harvest and drive profits their way. Don’t get me started on the National Stabilization Fund.

I strongly believe that the first countries that start to mark-to-market, instead of mark to disgraced financier Bernie Madoff, will be long-term winners. This Chinese Nationalist Party (KMT) government needs to come clean about the nation’s true sovereign deficit and adopt new policies that will help us with the inevitable reversion to the mean in the property market. That said, the luxury tax is working well, in my view, to get speculators out.

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