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Taiwan’s housing market is gaining momentum
Taiwan's Lutheran home price index increased 0.94% (0.37% inflation-adjusted) during the year to Q2 2017, in contrast with a decline of 3.3% during the same period last year, according to Sinyi Real Estate Planning and Research. During the latest quarter (Q2, 2017), nationwide house prices rose by 1.48% (1.28% inflation-adjusted).
All the country's major cities show signs of improvement.
- In Taipei, the capital, house prices fell by 1% (-1.6% inflation-adjusted) during the year to Q2 2017, after y-o-y declines of 4.4% in Q2 2016 and 6.6% in Q2 2015.
- In Xinbei, house prices fell by just 0.9% (-1.5% inflation-adjusted) y-o-y in Q2 2017, after annual declines of 4.1% in Q2 2016 and 1.37% in Q2 2015.
- In Taoyuan, house prices rose by 2.7% (2.2% inflation-adjusted), after annual declines of 4.6% in Q2 2016 and 2.3% in Q2 2015.
- In Hsinchu, house prices rose by 2.8% (2.2% inflation-adjusted), after y-o-y decline of 0.5% in Q2 2016 and an annual rise of 2% in Q2 2015.
- In Taichung, house prices rose by 2% (1.5% inflation-adjusted), from an annual decline of 3.2% in Q2 2016 and a rise of 1.3% two years ago.
- In Kaohsiung, house prices increased 4.3% (3.8% inflation-adjusted), from y-o-y decline of 2.5% a year earlier and an annual increase of 9.2% in Q2 2015.
Property transactions in Taiwan's six major metropolitan areas (Taipei, New Taipei, Taoyuan, Taichung, Tainan, and Kaohsiung) rose by 20% during the first half of 2017, compared to the same period last year, based on government statistics. This contrastswith a sharp decline in property demand during 2016.
Residential construction licenses increased 4.1% y-o-y in the first half of 2017, after falling by 26% in 2016, 14% in 2015, and 7% in 2014, according to the Ministry of Interior.
The housing market will improve further this year, with property transactions expected to increase by about 6% y-o-y to 260,000 units, according to Tseng Ching-der of Sinyi Realty Inc.
Taiwan's economy grew by 1.4% in 2016, up from 0.7% growth in 2015 - still far below the average annual growth rate of 4.5% from 2010 to 2014. Recently, the Taiwanese government raised its GDP growth forecast for 2017 to 2.05% from the last estimate of 1.92%, according to the Directorate General of Budget, Accounting and Statistics (DGBAS), due to strong global demand for smartphones and other hi-tech electronic gadgets.
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 outlook improving; relations with China reached new lowThe Taiwanese government recently raised its GDP growth forecast for 2017 to 2.05% from the last estimate of 1.92%, according to the Directorate General of Budget, Accounting and Statistics (DGBAS). This was mainly due to improving exports driven by strong global demand for smartphones and other hi-tech electronic gadgets.
In the second quarter of 2017, the economy expanded by 2.1% from a year ago, from annual growth rates of 2.6% in the previous quarter and 0.7% in the same period last year.
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%, but since then growth has been modest. The Taiwanese economy grew by just 1.4% last year, after annual growth rates of 0.7% in 2015, 4% 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).
The country’s real exports and imports are expected to increase this year by 3.95% and 3.85%, respectively, according to DGBAS.
In July 2017, inflation stood at 0.77%, down from 1.23% during the same period last year, according to the National Statistics. Inflation of 0.95% is expected this year, according to DGBAS.
In June 2017, unemployment stood at 3.74%, according to the National Statistics. Nationwide unemployment rate averaged 4.34% from 2000 to 2016.
There were about 440,000 unemployed people in Taiwan in June 2017, down from 459,000 in the previous year.
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.
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. Last year, 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.
In May 2017, their relations reached a new low after China decided to boycott the Olympic-style sporting event, 2017 Summer Universiade, which will be held in Taipei in August 2017.
In June 2017, Panama severed diplomatic ties with Taiwan and forged relations with China, after the latter’s massive investment in the country. The decision follows a similar move last December by Sao Tome and Principe.
Relations between mainland China and Taiwan 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 challenges - criticisms of indecisiveness, a weak economy, labour protests and rows over personnel appointments, and a missile mistakenly fired towards mainland China.