Taipei Times: With an enormous market glut -- an estimated 1.25 million vacant residential units nationwide -- and more than NT$500 billion of bad loans tied up in real estate, the property market remains static. How much longer do you expect this situation to continue?
Calvin Wang (王治平): There aren't many transactions because most sellers are keeping their prices high, which unfortunately are much higher than buyers are willing to accept. But eventually the market will self adjust. The government will alter some policies to encourage transactions. This should happen very quickly but will be subject to how the government deals with the non-performing loan issue.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
The government is also reviewing the "go slow policy" and opening the market to foreign investors, including money from China. Setting up direct flights with China will impact the market as well.
TT: What are the hard core structural problems behind the current troubles in the real estate market?
Wang: The regulatory structure is the first problem. Most transactions are still conducted privately and are not registered with the government. As a result, the market simply is not transparent enough. In comparison, the US and Australia have close to 100 percent transparency. The next level in Asia is Hong Kong and Singapore. Most purchase agreements in Hong Kong are registered with the government so everybody can access the data very easily. We don't have that kind of system. Some people in the private sector are pushing the government to form a kind of real estate center to consolidate all the transaction information.
TT: What concrete measures have the government taken so far to improve the regulation of the market?
Wang: There's going to be a license system for brokers in place starting Feb. 3 next year. Hopefully after the broker testing [system is implemented], industry work ethics will improve so we'll have less monkey business with under the table dealings and money laundering.
This has been terrible [for the industry] and is why the market is very difficult for any legitimate company to work in. Another positive improvement is that in less than five years the government will institute new regulations whereby appraisers must have a license just like those awarded to certified public accountants. Once they pass a national test, they will be given a license. Currently, anybody can do a valuation, but in the future only licensed people will be able to do so.
Then there is the economic issue. The fundamental problem today is user demand. What real estate does the end user need? What investor will develop an office building if nobody will lease the space? So the fundamental issue with the economy is still demand. The real demand depends on who wants more space. Who wants to expand their retail space. The issue today is how to create more demand in the market. Demand must be generated by a change in government policy, like direct trade with China and the multiplier affect of accepting Chinese tourists in Taiwan.
TT: Did you think the proposal to cut the land value incremental tax is a reasonable way to stir up incentive in the market?
Wang: I don't think it would be helpful. Actually, there are a lot of problems with it. The tax savings are limited and the government only considered a two-year time frame. What happens after two years? It's not a real solution for this issue. The real solution is to try and increase demand.
TT: How will opening the real estate market to Chinese and foreign investors impact the market?
Wang: Allowing Chinese investors into the local real estate market would have an important symbolic effect. Foreign investors, including those from China coming into Taiwan to make investments, would further stimulate local economic confidence. A lot of people say it's a confidence, not a consumption, issue. Because of [a lack of] confidence, everybody reduces their investments.
TT: When are you expecting a decision on this policy?
Wang: The end of August is important because it is when the Economic Development Advisory Conference ends. President Chen Shui-bian has already said the conclusions reached by the conference must be implemented by the Cabinet.
It's good to hear and we definitely support that. It's very important for confidence. So the conclusion of that meeting is key. The next issue will be World Trade Organization talks in November when China has a chance to enter. It is understood that Taiwan will join 5 minutes after China which will positively impact the economy and the market.
TT: Which sector of the market will that impact be felt the strongest?
Wang: If the office occupancy ratio increases, commercial property and office buildings will be impacted directly. Recently, the vacancy rate has been increasing. In the first quarter of 2000, the vacancy rate was 2 percent. In the first quarter of 2001 it was 4 percent. In second quarter it hit 6.5 percent. We anticipate in the third and fourth quarters, if the economy continues the way it has been in the last few months, it will probably go up to between 8 and 10 percent. The fundamental issue is that the office occupancy rate mainly depends on financial institutions and high-tech companies. These are the two biggest office users. But they have been affected by the US economy. The performance of US high-tech is key to Taiwan high-tech and Taiwan high-tech has become key to the commercial property market. Intel CEO Craig Barrett, who was in Taiwan recently, said it will take another six months for the US to recover. I've heard people say that by the end of this year US inventories will be reduced to reasonable levels so they can start to build up their economy. So we will probably see an improvement sometime next year.
TT: Of the roughly NT$1 trillion in bad banking industry loans, more than 53.9 percent, or NT$520 billion (US$16.25 billion), is in bad loan real estate collateral. Some pundits have forecasts discounts as high as 40 to 50 percent when asset management companies [AMC] begin auctioning off real estate used as collateral. What do you expect and when will price drops begin to appear?
Wang: We've contacted a number of AMCs and the consensus seems to be that they're waiting for the right time to get into the market. When will the timing be right? When the government forces the banks to deal with their non-performing loans [NPL]. The real issue is what will be the true value of those NPLs.
Unfortunately, [discounts on property prices] will be 40 to 50 percent, perhaps even lower than that. That's the time when AMCs will be interested in taking over the NPLs.
TT: The company you co-founded -- Investec (諮群顧問) -- offered a multitude of services in the real estate market. What spurred the decision to merge with Jones Lang LaSalle (仲量聯行) and what kind of increase in business do you expect from additional services brought on by Jones Lang LaSalle, like the capital market services?
Wang: First, we believe we can contribute a lot in this transitional economy, meaning the structural changes to the real estate sector. Jones Lang LaSalle has a lot of experience in the disposal of NPLs in Tokyo, Korea, Bangkok and Indonesia . So we can bring that experience into the market. Currently, we are talking to a number of AMC companies about the strategy involved in doing just that. That's one area. The second, which we are also very strong in, is the retail shopping sector. Before the merger, Investec already had a very strong foothold in this market. With the arrival of Jones Lang LaSalle and its global resources, we are in a consolidation stage and providing a total solution for retailers. This means we offer services from consultancy to total leasing to shopping center management. We can localize international resources in the Taiwan market. In the old days, I was chairman of the shopping center development council and we saw a lot of international players trying to come into the market unsuccessfully. Shopping developers came from the US, Australia, Europe and Japan but they weren't successful because they weren't localized. They don't follow the critical local issues. With the combination of Jones Lang LaSalle and the Taiwan office, we believe we can localize those resources and provide more precise solutions for our clients.
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