Ultra-low interest rates
Lalaine C. Delmendo | March 01, 2022
Taiwan's Lutheran home price index rose strongly by 14.77% (10.79% inflation-adjusted) in during the year to Q2 2022, up from the previous year's 10.48% increase and the biggest y-o-y growth recorded since Q4 2013, based on figures from Sinyi Real Estate Planning and Research. On a quarterly basis, nationwide house prices increased 2.19% (0.78% inflation-adjusted) in Q2.
In Taipei, the capital, house prices were up 8.33% (4.57% inflation-adjusted) during the year to Q2 2022, at par with the prior year's 8.69% increase. It was one of the capital city's best performance in the past decade. On a quarterly basis, house prices in Taipei increased 2.2% (0.79% inflation-adjusted) during the latest quarter.
All of the country's other major cities saw strong house price rises during the year to Q2 2022.
- Xinbei house prices rose by 14.64% (10.66% inflation-adjusted) y-o-y in Q2 2022, up from the prior year's 8.4% rise and its strongest performance since Q1 2014.
- Taoyuan house prices rose strongly by 18.09% (13.99% inflation-adjusted), following a y-o-y growth of 14.46% in Q2 2021. It was the city's second biggest annual increase in nine years.
- Hsinchu house prices surged 36.04% (31.32% inflation-adjusted) y-o-y in Q2 2022 – sharply up from the previous year's 19.27% rise and its second biggest annual expansion recorded since the series started to be published in Q1 2001.
- Taichung house prices also increased strongly by 19.52% (15.38% inflation-adjusted), up from a y-o-y rise of 11.92% in Q2 2021 and the biggest growth since Q1 2010.
- Kaohsiung house prices soared 24.49% (20.17% inflation-adjusted), about four times the 6.03% y-o-y rise seen in Q2 2021 and its best showing in nine years.
Demand remains stable, despite the introduction of market-cooling measures. In August 2022, property transactions in Taiwan's six major cities totaled about 19,000 units – up by 3.7% from the previous month and by 14.4% from a year earlier. Overall, in the first eight months of 2022, housing transactions in the six major cities increased slightly by 0.2% to reach 169,137 units as compared to the same period last year.
Residential construction activity continues to rise. In the first half of 2022, the total number of residential construction licenses rose by 3.6% to 85,725 as compared to a year ago, following annual increases of 6.5% in 2021 and 7.7% in 2020, according to figures from the Ministry of Interior.
Yet the overall economy seems slowing. Taiwan's economy grew by 3.05% year-on-year in Q2 2022, following annual expansions of 3.72% and 5.32% in the previous two quarters, according to the country's national statistics agency. It was the lowest growth since Q2 2020, amidst supply chain woes, a surge in domestic Covid-19 cases, and slowing global demand for electronics.
As such, the government recently downgraded its 2022 growth projections for Taiwan for the second time to 3.76%, from its earlier estimates of 3.91% and 4.42%. During 2021, the Taiwanese economy grew by 6.28%, its fastest pace in more than a decade, mainly driven by strong tech exports during the Covid-19 pandemic to support people working and studying from home as well as improved consumer confidence.
Analysis of Taiwan Residential Property Market »
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.
Taiwanese economy slowing, exports falling
Taiwan’s economy grew by 3.05% year-on-year in Q2 2022, following annual expansions of 3.72% and 5.32% in the previous two quarters, according to the country’s national statistics agency. It was the lowest growth since Q2 2020, amidst supply chain woes, a surge in domestic Covid-19 cases, and slowing global demand for electronics.As such, the government recently downgraded its 2022 growth projections for Taiwan for the second time to 3.76%, from its earlier estimates of 3.91% and 4.42%. During 2021, the Taiwanese economy grew by 6.28%, its fastest pace in more than a decade, mainly driven by strong tech exports during the Covid-19 pandemic to support people working and studying from home as well as improved consumer confidence.
Exports, which account for about 60% of the country’s GDP, is now showing signs of slowdown. In September 2022, merchandise exports fell by 5.3% from a year earlier, its first contraction in more than two years, according to the Ministry of Finance. Exports to China, Taiwan’s largest trading partner, dropped 13.3% y-o-y in September, partly due to weakening demand there caused by continued Covid-19 restrictions and a property downturn. Exports to the United States and Europe also fell.
Mainland China and Hong Kong accounted for about 42% of Taiwan’s exports in 2021, while the United States had a 15% share.
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 2.9%. The economy expanded by 3.4% in 2020, despite the pandemic.
Overall inflation stood at 2.75% in September 2022, down from a 14-year high 3.59% seen in June 2022, based on figures from the National Statistics. Yet it remains far higher than the average inflation rate of less than 1% in the past decade.
In August 2022, Taiwan’s unemployment rate was 3.79%, down from 4.24% a year earlier, as the labour market returns to pre-pandemic levels.
Behind China and Taiwan’s tense relations
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 in 2016 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 an average of around 40% of the island’s exports every year. 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. As an expression of outrage, China 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 to these small countries. Then in December 2021, Nicaragua also switched diplomatic recognition from Taipei to Beijing. Eight 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 14 diplomatic allies left.
China’s campaign to isolate Taiwan extends to minute details. In the past three years, 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 for listing Taiwan as the “country of origin” on packaging.
In recent years, China has also ramped up military pressure on Taiwan through repeated incursions into the latter’s airspace.
In a move to curb Taiwan’s economic reliance on mainland China and forge a free trade agreement with the US, Tsai has recently lifted a long-standing import ban against US pork, despite significant public pushback. Then in September 2021, Tsai signified its intention to join the 11-country trade pact Comprehensive and Progressive Agreement for Trans-Pacific Partnership to strengthen Taiwan’s economic ties with other nations.
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.
Ironically, most Taiwanese people favor neither formal independence nor eventual unification with China. Based on a June 2022 survey conducted by the Election Study Center of the National Chengchi University, only 5.2% of the population supported independence as soon as possible, while 1.3% were in favor of unification with mainland China. The rest of the respondents want to maintain the status quo indefinitely with no move towards either independence or unification.