Taiwan’s Lutheran home price index fell by 3.3% (-4.6% inflation-adjusted) during the year to Q2 2016, its fifth consecutive quarter of house price falls, according to Sinyi Real Estate Planning and Research.
All Taiwanese cities saw falling house prices during the year to Q2 2016:
- In Taipei, the capital, house prices fell by 4.43% (-5.69% inflation-adjusted), after y-o-y declines of 6.64% in Q2 2015.
- In Xinbei, house prices fell by 4.09% (-5.36% inflation-adjusted), after an annual decline of 1.37% in Q2 2015. This was the sixth consecutive quarter of y-o-y declines.
- In Taoyuan, house prices dropped 4.59% (-5.84% inflation-adjusted), after an annual decline of 2.35% in Q2 2015 and also its sixth consecutive quarter of y-o-y falls.
- In Hsinchu, house prices fell slightly by 0.45% (-1.77 % inflation-adjusted), in contrast with an annual rise of 2.01% in Q2 2015.
- In Taichung, house prices fell by 3.16% (-4.43% inflation-adjusted), down from annual increases of 1.27% in Q2 2015, 4.49% in Q2 2014, 18.29% in Q2 2013, and 11.68% in Q2 2012.
- In Kaohsiung, house prices dropped 2.5% (-3.78% inflation-adjusted), after annual increases of 9.2% in Q2 2015, 2.87% in Q2 2014, 26.34% in Q2 2013, and 16.27% in Q2 2012.
Demand continues to fall, amidst a weakening economy. In 2015, the number of property transactions in Taiwan dropped 8% to 294,000 units, while transaction value plummeted by around 24% y-o-y to just NT$2.92 trillion (US$86.9 billion).
The weakness of the local property market continued this year, after the government introduced a new property-related tax measures that took effect on January 1. The new tax burden aims to curb speculation by imposing a capital gains tax of up to 45% on homeowners who sell second homes within six years from the date of purchase.
In July 2016, property transactions in the country’s six metropolitan areas were almost unchanged from a year earlier, at 18,259 units, according to latest government figures.
Residential construction licenses fell by more than 35% to 36,573 units in the first half of 2016, after falling by 14% in 2015 and by 6.7% in 2014, according to the Ministry of Interior.
Residential property prices in Taiwan are likely to fall by about 10% this year, according to Lin Tai-lung of Yung Ching Realty Group. The luxury market, which is the target of the new tax measure, is likely to see the biggest price declines.
In addition, property transactions are expected to fall below 2015 levels, according to Tseng Ching-der of Sinyi Realty Inc.
The economy grew by just 0.65% in 2015, its weakest annual growth since 2009. The economy is expected to expand by 1.06% this year.
Analysis of Taiwan Residential Property Market »
The owner of an apartment in Taipei will be lucky to realize 2% yields, except on the very smallest apartments. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for vacant periods, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, it is safe to say that landlords in Taiwan earn nothing on their apartments.
We believe apartments in Taipei are overvalued - and will fall in price. But we should warn readers that we can get it wrong!
Capital Gains: Capital gains realized by nonresidents are treated as regular income, and are taxed at the personal tax rate of 20%.
Inheritance: Estate duty is levied at 10%.
Residents: Residents are taxed on their income from Taiwanese sources at progressive rates, from 5% to 45% for tax year 2015.
Rent Control: There is rent-control, and tenants have security of tenure. However, most landlords catering to the low income segment do not follow the law.
However, those who cater to the expatriate and high income market have no choice but to follow the law. To avoid the legal disadvantages, most high-end apartments rent as serviced apartments.
Taiwan, heavily dependent on exports, was seriously affected by the US economic recession in 2008. The key interest rate was reduced from a five-year peak of 3.625% in August 2008 to the historic low of 1.25% in February 2009. The economy bounced back sharply in 2010 with spectacular growth of 10.6%, but since then growth has been modest. The Taiwanese economy grew by a meagre 0.75% last year, down from annual growth rates of 3.9% in 2014, 2.2% in 2013, 2.1% in 2012, 3.8% in 2011, and 10.6% in 2010, according to the International Monetary Fund (IMF).
Taiwan’s exports rose by 1.2% y-o-y to US$24.1 billion in July 2016, in contrast with a 2.1% decline a year earlier and its first expansion since January 2015. During the twelve months to July 2016, trade surplus totaled US$48.2 billion.
In July 2016, inflation stood at 1.23%, according to the National Statistics. Taiwan expects to see an inflation rate of 0.7% this year, from -0.3% in 2015, according to the IMF.
Unemployment is expected to average 3.78% this year, unchanged from last year, according to the IMF.
In the January 2016 presidential elections, Tsai Ing-wen led the Democratic Progressive Party (DPP) to landslide victory and became Taiwan’s first female president. However, Taiwan’s ties with mainland China have been strained, since independence-leaning party took power in May 2016.
In contrast to former president Ma, one of Tsai’s key economic policies is to reduce Taiwan’s reliance on mainland China, which accounts for around 40% of the island’s exports. Tsai plans to form closer ties with the ASEAN.
As such, mainland China has become highly suspicious of Tsai, and has warned her against any attempt at a formal breakaway. Recently, the Chinese government announced that it had cut off official contact with Taipei.
Relations between mainland China and Taiwan had thawed after President Ma of the Kuomintang Party (KMT) assumed office in May 2008. He vowed greater cooperation with mainland China and denounced independence for Taiwan, a sharp contrast to his nationalist but corrupt predecessor, Chen Shui-bian. In November 2009, several memorandums of agreement between Taiwan and China on financial cooperation were signed. These gestures reassured investors and home buyers alike. In June 2010, an Economic Cooperation Framework Agreement (ECFA) was signed by Taiwan and China. President Ma also accepted the 1992 consensus, which played a crucial role in lowering tensions with China and boosting cross-strait economic ties.
Ma was reelected in the 2012 presidential elections. Cross-straits trade nearly doubled during Ma’s term, reaching US$198 billion in 2014. Tourism flourished, with nearly three million Chinese tourists a year.
Since her election in January, Tsai has been faced with several challenges - criticisms of indecisiveness, a weak economy, labour protests and rows over personnel appointments, and a missile mistakenly fired towards mainland China.