Taiwan's modest house price rises continue
Lalaine C. Delmendo | June 27, 2020
Taiwan's Lutheran home price index increased 2.67% (2.7% inflation-adjusted) during the year to Q1 2020, a slight increase on the previous year's 2.11% increase, according to Sinyi Real Estate Planning and Research. Quarter-on-quarter, nationwide house prices rose by 3.43% (4.4% inflation-adjusted) in Q1 2020.
However in Taipei, the capital, house prices fell slightly by 0.1% (-0.07% inflation-adjusted) during the year to Q1 2020, in contrast to the previous year's 1.5% y-o-y increase and the first decline since Q4 2017. On a quarterly basis, house prices in the capital city fell 0.33% in Q1 2020 but increased 0.6% in real terms.
All of the country's other major cities saw house price rises during the year to Q1 2020.
- Xinbei house prices rose by 2.93% (2.96% inflation-adjusted) y-o-y in Q1 2020, its tenth straight quarter of annual growth.
- Taoyuan house prices rose by 2.07% (2.1% inflation-adjusted), following a 3.47% y-o-y growth in Q1 2019.
- Hsinchu house prices rose by 5.46% (5.49% inflation-adjusted), its thirteenth consecutive quarter of y-o-y growth and the second biggest expansion since Q3 2014.
- Taichung house prices rose strongly by 8.64% (8.67% inflation-adjusted), the biggest growth since Q1 2014.
- Kaohsiung house prices increased 1.02% (1.05% inflation-adjusted), following y-o-y rises of 5.78% in Q4 2019, 0.55% in Q3, 2.35% in Q2 and 5.42% in Q1.
Due to the coronavirus outbreak in May 2020 housing transactions in Taiwan's six major cities plunged 21.7% to 17,201 units from a year earlier. For the first five months of 2020, housing transactions fell by 3.2% y-o-y, following a 9.4% growth in 2019.
In contrast, the total number of residential construction licenses issued continue to rise by 4.7% y-o-y to 47,334 units in the first four months of 2020, following strong growth of 22.1% in 2019 and 32.3% in 2018, according to the Ministry of Interior.
The economic repercussions of the COVID-19 outbreak in Taiwan have been milder than in neighbouring countries. The Taiwanese economy expanded by 1.54% year-on-year in Q1 2020. Recently, the Directorate General of Budget, Accounting and Statistics (DGBAS) predicted that the economy will contract by 1.67% this year, following expansions of 2.71% in 2019, 2.75% in 2018, 3.31% in 2017, 2.17% in 2016 and 1.47% in 2015.
Taiwan’s unhappy property owners
Taipei now vies with Monaco for having the lowest yields in the world. With buying prices per square metre averaging a steller US$7,200 to US$9,200, depending on size, and rents still affordable (where else can you rent a US$1.8 million home for just US$2,200 per month?), Taipei is not a happy place for landlords.
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!
Rental income tax is high in Taiwan
Rental Income: The gross income of nonresidents is taxable at 20% with no exemptions or deductions allowed.
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%.
Buying costs are moderate in Taiwan
The total roundtrip cost of buying and selling a dwelling is around 10.26% - 13.3% of the property's value, including the real estate agent's 4% - 6% fee, which is shared by the buyer (1% -2%) and the seller (3% - 4%). To register the property requires three procedures, which can be completed in about five days.
Pro-tenant laws lead to avoidance
If the tenancy laws were properly followed, Taiwan could be regarded as pro-tenant.
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.
Economic growth slowing; exports fallingThe economic impact of the COVID-19 outbreak in Taiwan has been milder than in neighbouring countries, and the Taiwanese economy expanded by a revised 1.59% year-on-year in Q1 2020. However this is the slowest growth since Q1 2016.
The Directorate General of Budget, Accounting and Statistics (DGBAS) has predicted that economic growth will slow to 1.67% this year, following expansions of 2.71% in 2019, 2.75% in 2018, 3.31% in 2017, 2.17% in 2016 and 1.47% in 2015. The International Monetary Fund (IMF) is more pessimistic, predicting a 4% contraction this year.
“Even though Taiwan’s Covid-19 situation appears to be contained, we expect Taiwan’s GDP to weaken further into 2Q 2020, as the escalation of Covid-19 in the rest of the world is likely to weigh on its exports, with spillover implications to domestic demand,” noted Morgan Stanley economists Deyi Tan and Jin Choi.
Exports, which accounts for about 60% of the country’s GDP, are now expected to remain in the negative for the whole year. Exports dropped 2% y-o-y in May 2020, the third straight month of y-o-y decline. Recently, Taiwan’s statistics agency cut its 2020 forecast for merchandise and services exports to -3.1%.
Taiwan, heavily dependent on exports, was seriously affected by the US economic recession in 2008. The economy bounced back in 2010 with spectacular growth of 10.6%. From 2011 to 2019 the Taiwanese economy has grown by an annual average of 2.8%.
Consumer prices fell by 1.19% in May 2020, the four consecutive month of falling prices, according to the National Statistics.
The seasonally-adjusted unemployment rate rose to 4.1% in April 2020, the highest level since December 2013, according to the National Statistics.
Tsai Ing-wen’s reelection expected to widen China-Taiwan divide further
In the January 2020 presidential elections, Tsai Ing-wen of the independence-leaning Democratic Progressive Party (DPP) won her second term in office, after defeating her major challenger Han Kuo-yu of the mainland-friendly Kuomintang by close to 3 million votes.
The conflict between Mainland China and Taiwan started to escalate four years ago when Tsai assumed office and became Taiwan’s first female president. 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.
Mainland China is highly suspicious of Tsai, warning her against any attempt at a formal breakaway. Early in 2016, the Chinese government announced that it had cut off official contact with Taipei. In December 2016, Taiwan sent a blunt message to China by preparing its military forces and stepping up its training exercises to fend off Beijing’s threats.
Taiwan’s relations with China reached a new low after China decided to boycott the Olympic-style sporting event, 2017 Summer Universiade, which was held in Taipei in August 2017.
In June 2018, the construction of a US$250 million complex that will house the new American Institute in Taiwan (AIT), which serves as the United States’ de facto embassy in Taipei, escalated further the tensions between Taiwan and Mainland China.
In July 2019, the US announced of its intent to sell 108 M1A2T Abram tanks and Stinger missiles worth US$2.2 billion to Taiwan, despite China’s demand to cancel the said sale. The weapons deal is a signal to China of US commitment to Taiwan and to a peaceful resolution of cross-strait differences. As an expression of outrage, China recently said that it would impose sanctions on US firms involved in the weapons sale, as it harmed China’s sovereignty and national security.
In September 2019, both Solomon Islands and Kiribati severed ties with Taiwan and officially recognized Beijing, amidst the latter’s assurance of providing development assistance in these small countries. Seven diplomatic allies have cut ties with Taiwan since Tsai came to office, including Burkina Faso, Dominican Republic, Sao Tome and Principe, and Panama.
“China stealing our allies, pressuring our international space won’t shrink the distance across the strait and won’t allow for peaceful, friendly development of cross-strait relations,” said Taiwan’s foreign minister Joseph Wu.
Taiwan now has only 15 diplomatic allies left.
China’s campaign to isolate Taiwan extends to minute details. In the past months, Beijing has been sending warning to airlines to list “Taiwan, China”, rather than just “Taiwan”, on their websites. The move seems to be working - The Associated Press has found that about 20 carriers, including Air Canada, British Airways, and Lufthansa, now refer to Taiwan as a part of China on their websites. In addition, China fined a Japanese clothing company recently for listing Taiwan as the “country of origin” on packaging.
Relations between Mainland China and Taiwan thawed when 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.