Taiwan’s Red-Hot Housing Defies Challenges From Covid to China

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Taiwan home prices jumped the most in six years in the first quarter and may reach new highs by the end of the year, though analysts say a soft lockdown and new curbs may slow both deals and gains.

Average prices across the six main cities gained 5.7% on year, while Tainan surged 9.9% and capital Taipei rose 4.9%, according to Ministry of the Interior data this week. The ministry said buyers were driven by expectations that prices will keep rising, and that affordability remains low.

Pandemic-era housing markets look bubbly from Auckland to Austin, thanks to record low rates, but Taiwan prices defy more odds than most: The population is falling, more than one in 10 homes are vacant, and decades of low wage-growth have stretched affordability. Prices have also risen despite the constant threat of invasion from China, and new rules to curb speculation may also fail to rein them in.

“The government is not bringing its ultimate game to fight the overly-hot market.” said Yang Chung-hsien, an associate professor and real estate specialist at National Pingtung University. “The real solution for restraining prices lies in raising property taxes.”

Taiwan’s Red-Hot Housing Defies Challenges From Covid to China

To be sure, second-quarter deals may have slowed due to an outbreak of Covid-19, which has infected roughly 13,500 people since the beginning of May and led to school suspensions and restrictions on public gatherings.

“The market was doing pretty well before the outbreak, but now we can’t take clients to open houses,” said Justine Chen, head of research at Yung Ching Realty. “Transactions may decline, but there’s not much room for prices to drop as developers grapple with rising raw material costs and a shortage of construction workers.”

Curbing Speculation

Home prices rose 3.9% last year, while housing and commercial deals surged to the highest in seven years, according to the interior ministry. New curbs on speculation came into effect Thursday, regulating the sale of unfinished apartments and cracking down on short-term, tax-avoiding deals. The central bank also tightened mortgage loans for those with multiple properties, and for luxury homes and corporate buyers.

That’s aimed at helping those shut out from the market — principally younger people and those with low incomes — amid widespread resentment at the concentration of wealth among older Taiwanese. Some 78.1% of all properties, including residential and commercial, are owned by those aged 45 years old and above, according to ministry data.

Indeed, residential and office deals in Taiwan’s six largest cities surged 27.9% in April from a year earlier, according to the state-run news agency. That’s even as the 23.5 million population has been declining by roughly 400 people a day in 2021.

“Though the population is falling, smaller families are creating new demands, such as for small- and medium-sized apartments.” Chen said. A cultural belief that “owning property is owning wealth” remains strong, she said.

Cheap Money

A 14-year-old 365-square-foot apartment in Taipei’s central Xinyi district recently went for NT$16 million ($573,000), according to the Ministry of the Interior. That may seem cheap compared to the likes of neighboring Hong Kong, the world’s most-expensive market, but an average family in Taipei would need to spend more than three-fifths of their salary on mortgage payments at current prices, according to the interior ministry.

Island-wide, Taiwanese spend roughly 36.5% of their income servicing their home loans, with a ratio of less than 30% being seen as reasonable.

On June 17, the central bank said it’s watching to see if recent measures stabilize prices, and that it’s prepared to tweak policies if needed.

But it held rates at a record low of 1.125%, and banks have plenty of money to lend. Anti-speculation measures will curb volumes, but ample liquidity will drive housing prices in 2022, said Andy Huang, director at RePro Knight Frank.

“Low rates and highly accessible mortgages have lowered the barrier to buying homes,” said National Pingtung University’s Yang. “If we can lift the third-level lockdown by July or August and have vaccines fully supplied, I believe that housing prices will continue to rise more quickly.”

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