Taiwan

Taiwan Residential Real Estate Market Analysis 2022

Lalaine C. Delmendo

Taiwan’s house price growth continues to accelerate, amidst robust demand buoyed by the ultra-low interest rate environment.

Taiwan’s Lutheran home price index rose strongly by 14.77% (10.79% inflation-adjusted) 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 performances 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 to be slow. 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.

Taiwan’s house price annual change

Housing affordability is a major problem

Taipei is one of the world’s most expensive cities. Taipei’s house price-to-income ratio has risen sharply from just 6.4 in 2004 to about 15.8 in 2021, according to the country’s Ministry of Interior (MOI) – higher than London (8.6x), New York (5.9x), Toronto (9.9x), Sydney (11.8x) or Vancouver (13x). Hong Kong is still the world’s least affordable market, with a score of 20.7, according to Demographia’s 2021 International Housing Affordability report.

Taiwan house price to income ratio taipei

Nationwide, the house price-to-income ratio stood at 9.1% in 2021, up from 8.58 before the Covid-19 pandemic, based on MOI figures.

Recently, Taipei Mayor Ko Wen-je stressed the urgent need to resolve the country’s affordable housing crisis before it provokes social unrest, similar to the case of Hong Kong.

“[In Hong Kong], high rent and housing prices are causing class struggle, a widening wealth disparity, and accumulating resentment among young people,” said Ko. “Unless the problem is resolved, Hong Kong’s problem today could become Taiwan’s tomorrow.”

To address the problem, Ko announced that the city plans to build 50,000 public housing units in the next seven years.

With the local elections in Taiwan scheduled on November 26, 2022, some mayoral candidates, especially in Taipei, are focusing on their housing policies. Former Deputy Taipei Mayor Huang Shan-shan, who is running as an independent with the support of incumbent Taipei Mayor Ko Wen-je, proposed a revised social housing policy and housing help for elderly residents while Chen Shih-chung of the Democratic Progressive Party (DPP) vowed to build new social housing units and lower rents.

Taiwan house price indices

Housing demand was boosted after 2009 when the government cut inheritance tax rates from 50% to 10%, and interest rates were cut. Unmonitored speculation, low housing supply, and a long tradition of homeownership pushed house prices in Taiwan, particularly in the capital city, and particularly on high-end properties. A three-bedroom apartment, which cost just TWD6 million (US$187,404) to TWD7 million (US$218,650) in 1995, was sold for over TWD20 million (US$624,716) last year.

From 2001 to 2021:

  • In Taipei City, the house price index rose by 244% (176% inflation-adjusted)
  • In Xinbei, the house price index rose by 273% (199% inflation-adjusted)
  • In Taoyuan, the house price index rose by 273% (200% inflation-adjusted)
  • In Hsinchu, the house price index rose by 257% (187% inflation-adjusted)
  • In Taichung, the house price index rose by 344% (257% inflation-adjusted)
  • In Kaohsiung, the house price index rose by 242% (175% inflation-adjusted)

“Unfortunately, buying a home remains unaffordable for most young Taiwanese, a situation we don’t expect to change in the medium term,” said Emily Dabbs of Moody’s Analytics. An average household in Taipei needs to pay two-thirds of its income for a mortgage loan, far above the affordable limit of 30%.

Dramatic measures introduced to curb speculation

Worries about mainland speculators peaked in early 2008 when residential property prices rose by more than 10% y-o-y during the first quarter. Upward pressure further increased when Chinese banks based in Taiwan were able to offer mortgages after the signing of an MOU in November 2009.

From October 2009 onwards, the central bank actively urged banks to closely monitor mortgage-lending risks. A big step was to assign a 100% risk weighting to non-owner occupied residential mortgages. Risk weightings for other home mortgage portfolios range from 50% to 80%, compared with 10%-20% for banks in other developed markets in Asia-Pacific that practice the Internal Ratings-Based Approach to credit risk.

In 2011 a luxury tax was introduced. Second homes not occupied by the owner and sold within one year of purchase were taxed at 15%, and those sold within two years of purchase were taxed at 10%.

From March 2014 much tougher measures were introduced which caused house prices in Taiwan to drop 7.9% (3.7% inflation-adjusted) from Q2 2014 to Q1 2016. House prices increased by a minimal 1.8% in 2017 and 1.9% in 2018.

These were the measures:

In March 2014, property taxes on non-owner-occupied residential properties were raised to between 1.5% and 3.6%, from 1.2% to 2%.

Inspections of pre-sale house transactions were tightened. State-owned banks lowered loan-to-value ratios for first-time buyers from 80% to 70%, and to 50% from 60% for people owning more than one property.

On January 1 2016 a new property gains tax of as much as 45% took effect. Property sellers are now required to pay between 15% and 45% of gains based on market prices, instead of the previously used government-assessed values. Qualified property sellers with gains of less than TWD4 million (US$ 124,928) are exempt from the tax.

However, as the effect of these market-cooling measures wanes, house price growth is now accelerating again. Currently, house prices are rising by double-digit figures, following y-o-y increases of 14.6% in 2021, 6.5% in 2020 and 3.2% in 2019.

Because of this, the government has recently introduced measures that would tax houses and presale projects resold within five years of purchase. Accordingly, under the Amendments to the House and Land Transactions Income Tax 2.0 which came into force on July 1, 2021, a tax of 45% will be paid on gains from the sale of property within two years of purchase and 35% for gains made between two to five years. Foreign individuals and businesses are also required to pay the same amount of tax. According to the Ministry of Finance, the amended holding periods apply to houses and land acquired after January 1, 2016, and sold after July 1, 2021.

New measures to curb banks’ property exposure

In February 2022, Taiwan’s Financial Supervisory Commission (FSC) raised the regulatory risk weights (RW) applied for new domestic property loans, in an effort to reduce banks’ property exposure. More specifically:

  • The RW for new housing loans to retail buyers with more than two properties, as well as to corporate buyers, was raised to 50% - 100%, from 20% - 30%, to control speculative property investment.
  • The RW for new loans to finance land acquisition and housing inventories was also increased to 150% - 200%, from 75% - 150%.

“The measures should help to moderate the pace of banks’ property lending and contain concentration risks. However, we do not believe they will result in a significant reduction in the sector’s share of total lending,” said Fitch Ratings.

“The latest development follows other policy moves that already helped to moderate the growth in property-related loans in 2021, including stricter loan-to-value (LTV) requirements. Property’s share in new lending fell to 49% in 2021 from 58% in 2020,” Fitch Ratings added.

Mortgage interest rates gradually rising, amidst key rates hike

In its September 2022 meeting, the Central Bank of the Republic of China (Taiwan) raised the discount rate, the rate on refinancing of secured loans, and the rate on temporary accommodations by 12.5 basis points each to 1.625%, 2%, and 3.875%, respectively. It was the third rate hike this year, in an effort to curb rising inflation despite a slowing economy.

The central bank also decided to raise the reserve requirement ratios on NT dollar demand deposits and time deposits by 25 basis points each, effective October 1, 2022.

Taiwan interest rates

“The Board judged that, by continuing with policy rate hikes while also raising the reserve requirement ratios, it would help rein in domestic inflation expectations, maintain price stability, and help attain the policy objectives of fostering sound economic and financial development,” said the central bank in its Q3 2022 Monetary Policy Decision report.

The average interest rate for housing loans stood at 1.729% in August 2022, up from 1.349% a year earlier and 1.359% two years ago. Despite the increase, it remains very low by international standards.

New housing loans continue to rise

As a result of the central bank’s macro-prudential measures, although total outstanding housing loans rose by an average of 5.2% annually from 2009 to 2021, they remained absolutely steady as a proportion of GDP, at around 40% of GDP.

Most residential mortgages in Taiwan are variable rates, with an average maturity of 25 years.

Taiwan housing loans

During the first eight months of 2022, the amount of new housing loans rose strongly by 10.4% from a year earlier, to TWD480.59 billion (US$15.02 billion), according to the central bank.

Likewise, the total amount of outstanding housing loans in Taiwan increased 8.5% y-o-y to TWD 9.21 trillion (US$287.55 billion) in August 2022, according to the Central Bank of the Republic of China (Taiwan).

Residential construction still increasing

Residential construction continues to rise, amidst robust demand. 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, according to figures from the Ministry of Interior.

Taiwan residential construction

In Taiwan’s major cities:

  • In Taipei City, residential construction licenses surged 21.6% y-o-y to 6,483 in H1 2022.
  • In New Taipei City, licenses fell by 12.4% y-o-y to 11,070 in H1 2022.
  • In Taoyuan, licenses increased 13% to 12,700 in H1 2022 from a year earlier.
  • In Taichung, residential construction licenses fell by 8.4% y-o-y to 16,013 over the same period.
  • In Tainan, licenses increased by a huge 61.2% y-o-y to 11,107 in H1 2022.
  • In Kaohsiung, licenses rose by 17.6% to 8,901 in H1 2022 from a year earlier.

Taiwan’s vanishingly low rental yields

Taipei now vies with Monaco for the lowest yields in the world. Taipei is not a happy place to be a landlord. The owner of an apartment in Taipei will be lucky to realize 2% yields, except for the very smallest apartments. Currently, average rental yields in Taiwan hover around 1.5%.

Such low yields are often a sign of an overvalued market. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for vacant periods, 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.

Paradoxically Taiwan has one of the highest homeownership rates in the world at 87%, while social housing accounts for about 5% of households. And the trend toward home ownership is increasing. Because of this, Taiwan’s rental market is quite small, around 8% of around nine million households.

The Taiwanese economy slowing, and 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.

Taiwan gdp inflation

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, are now showing signs of a 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.

Taiwan unemployment

Overall inflation stood at 2.75% in September 2022, down from a 14-year high of 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 labor 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, the 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 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 warnings 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.

Sources:

Taiwan - More data and information