Wed, Jul 14, 2021 page8

• Property investment remains risky

  • By Chang Chin-oh 張金鶚
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  The introduction of the actual-price registration system for all property transactions nationwide and the “Joint Property Tax System 2.0,” effective from this month, together with the COVID-19 pandemic, have created a property market freeze, with transaction volumes shrinking and real-estate agents losing their jobs.

  It remains to be seen whether the nation will see a fall in closing prices, creating a stressed market, or whether investors who thrive on risk determine that this is the time to jump in and buy property at knockdown prices, entering the market at this period of “crisis.”

  Some believe that the market will rebound after the pandemic abates, and that now is a good time to buy.

  However, with the prevailing housing market conditions, with prices remaining high, but a lack of increase in incomes for buyers, there is little incentive to buy property.

  Meanwhile, sellers have deep pockets and sufficient liquidity. The two sides find themselves in a standoff.

  As a result, property prices are unlikely to budge in the short term and nobody knows exactly how the pandemic will develop.

  Faced with high property prices and uncertainty over the pandemic, it is difficult to predict whether property prices will bounce back or whether they will remain stagnant, leaving buyers and sellers unsure of how best to proceed.

  However, as the pandemic drags on, the wealth disparity will continue to widen. Meanwhile, the stock market is rising, potentially driving the desire to invest in property.

  On the other side of the coin, with people being required to stay at home as the nation deals with an outbreak, incomes are flatlining, and in some cases decreasing, leading to a further suppression of consumer momentum.

  The property market consists of two aspects, the main being people buying a home, followed by those wishing to buy as part of their investment portfolio.

  Especially given the current market, where sky-high property prices necessitate borrowing large amounts of money to own a home, buying property to live in is a completely different proposition from simply investing in stocks without exposing oneself to additional financial burden.

  That is, the decision to invest in the property market or the stock market entail different considerations: with buying property, individual consumer preferences prevail, while with buying stocks the major factors determining the decision will be profit and market trends.

  What is worrying is that in the past, the low number of investors in the property market has led to property price speculation that scared off buyers looking to purchase their own home.

  Real-estate agents have tried to entice people to enter the market, comparing today’s situation to the rebound in the aftermath of the 2003 SARS epidemic.

  However, this overlooks the differences in the circumstances between then and now, including the severity of the current outbreak and the huge differences in the state of the property market, not least because of the introduction of policies to curb property market speculation.

  Because of these differences, people simply do not know whether the property market will rebound. Amid high property prices, potential buyers are faced with the decision of whether to risk buying now, uncertain of whether prices will rise or fall.

  They stand to gain or lose not inconsiderable amounts of money: It is not a decision they should take lightly.

  Whether the government can curb speculation through the actual-price registration system and transparent information on pre-sale housing; whether the Joint Property Tax System 2.0 can prevent short-term and pre-sale housing investment transactions; whether controls can be implemented using the review and increase of interest rates on properties not for owner habitation and hoarding tax; and whether the government can implement a cross-departmental, multipronged approach to reduce incentives for investment and speculation in the property market will all be crucial at this juncture.

  However, if vested interest groups that believe that the government should suspend these policies, given the pandemic and the sluggish market, manage to apply sufficient pressure on the government force a change of course and choose the lesser of two evils, stormy seas could be ahead for the property market.

  The considerations of potential buyers are also important.

  People looking for a home to live in will be looking at practical matters, such as adequate ventilation, good sunlight, size and the local community environment, when considering a purchase.

  However, given the high prices at the moment, coupled with buyers’ limited resources, the options might be constrained to smaller, single-story properties that might not meet their expectations, especially with a partial lockdown to curb COVID-19 infection.

  In other words, when thinking of purchasing a property, individual requirements and resources will be central, and the nature of the property itself should be far more important to the decision than any considerations of uncertainty concerning the market in the near term. If people are thinking of buying property as an investment, they will stand to lose even more by buying a less-than-ideal property.

  In particular, buyers must be aware that they can only buy individual properties, and not a diverse basket like exchange-traded funds. These are two different propositions, so they should not be tempted to rush into the market and make a rash purchase that they might later regret.

  Chang Chin-oh is an honorary chair professor at National Tsing Hua University’s College of Technology Management.

  Translated by Paul Cooper
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