There have been many interpretations of how much the fortunes of the property market have changed since the new combined property tax reform was passed.
People are unsure whether the slump in the property market is a short-term phenomenon or the start of a long-term trend in which a new cycle is starting. That is, whether the bullish days are gone, with the nation now facing a bear market.
Optimists hold that now the tax has been passed, the nation is soon to emerge from a bear market, especially in the next six months before the tax law is actually implemented.
The hope is that investors and home owners become more confident in entering the market and buying property, in turn driving confidence in the short term, and that property prices are to rise in the long term, with property remaining the most favorable option for investors seeking to buy or sell.
However, pessimists believe that after the tax is passed, despite the fact that it would remove a degree of uncertainty, next year’s presidential election means that a degree of uncertainty is likely to remain during the next six months.
Rising interest rates and shrinking mortgage loan-to-value ratios are likely to be another source of uncertainty in the money markets, but the greatest uncertainty is likely to result from the property market, having seen 12 years of a bullish environment, gradually losing steam and entering into a new, bearish cycle.
The outcome of this is likely to be a conspicuous fall in prices.
Looking back at previous fluctuations in the property market, we can see that there were four periods of growth, from 1973 to 1974, 1979 to 1980, 1987 to 1989, and 2003 to the present, lasting two years, two years, three years and 12 years respectively, interspersed with periods of five years, seven years and 14 years in which the market did not perform quite so well.
In the past, the magnitude of property prices did not reflect the length of the slow periods.
Therefore, emerging from this long period of a vibrant market, the coming period of slow growth is not likely to be very short.
Past experience suggests that it could last from five to seven years on the short side, and a decade or more at the most.
Taipei currently levies a mansion tax, a hoarding tax, new construction standardized pricing and a housing street level adjustment rate, all of which greatly increase the cost of holding on to property, as a small number of wealthy people are doing.
These, together with a transactions cost included in the combined property tax, creates conditions for a turnaround in the property market, bringing an end to a bullish period and the beginning of a bearish part of the cycle.
Recent news has focused on how bad the property market is, citing that over the past year the number of transactions has conspicuously dropped, that there have been significant reductions in listed prices for mansions, that investors are leaving in droves, that many people are pulling out of contracts for advance-payment apartments, that construction firms are having financial difficulties and that there has been a significant increase in foreclosures.
The emergence of these various indicators of an anemic property market all point to the impending formation of a perfect storm and the situation needs monitoring.
It is possible that some companies or investors are confident that their pockets are deep enough to ride out the storm, and that history showing that house prices are likely to rise over the long term makes it is worth the gamble to do so.
It is just that the current slump could well be longer than expected, and because of the structural changes in the market due to the transaction rate and a higher cost of ownership, property has changed from being primarily investors’ commodities to mostly purchases for the use of living in, a phenomenon has not previously been encountered.
Therefore, it is too early to tell whether property prices are likely to climb or not over the long term.
If a company or an investor chooses not to gamble, the best policy would be to get out at this point, to sell at a lower price and come away on top while the getting is good.
How should homeowners wanting to buy a home respond?
At the moment there are still a lot of uncertainties in the housing market, and prices have only recently started to slip.
To get into the market at this point would appear to be doing investors a favor, as anyone doing so would be setting themselves up as a guinea pig.
As the new combined property tax does not affect home owners, potential buyers should watch and wait until more is known about the effect of these uncertainties before coming to a decision as to whether to buy a new home.
Whatever potential investors decide, buying a house involves large sums of money, and people must do their homework and exercise caution in making a decision.
Finally, it is hoped that the government’s policy has some kind of impact, because if the property market does go into a slump, it is going to be hard.
It can also be anticipated that the reaction of those with vested interests are likely to ask for all kinds of financial assistance and guidance.
The government should stick to its guns and allow the robust market mechanism to do its work, leaving behind the surplus and underperforming parties to create a healthier market.
It should also set up a reasonable set of rules so that similar problems with the market and the government can be avoided in future, and thereby keep the property market healthy and property prices reasonable.
Chang Chin-oh is a distinguished professor of land economics at National Chengchi University.
Translated by Paul Cooper
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