Who is to blame for skyrocketing prices on Taipei’s real estate market?

For Global Times

In the run-up to the signing of the Economic Cooperation Framework Agreement (ECFA) between China and Taiwan, Taipei’s real estate prices have been skyrocketing. With very low taxation and investors anticipating Chinese companies to be allowed to set up branch offices and to buy property in Taiwan, Taipei houses have become a tool for speculation.

It is the prevalent public perception that there is a direct connection between ECFA, the imminent arrival of Chinese real estate traders and soaring housing prices.

Yet contradicting mainstream opinion, mainland speculators aren’t going to be active on the Taiwan market. Even after the signing of the pact, heavy restrictions for mainland buyers will remain. ECFA is unlikely to change this. Apart from hindering regulations, China’s own realty market is seen as more lucrative than the Taiwanese for Chinese speculators.

If there’s potential for Chinese investment, experts see it in the commercial rather than the residential property market. That particularly the latter shows signs of overheating is the result of investments done by returning Taiwanese businessmen who made huge fortunes in China.

Taipei’s realty brokerage firms report that ‘taishang’, as these businessmen are commonly called in Mandarin, often purchase seven or eight luxury housing units in one go.

“Purchases of high price real estate are not because of the mainlanders, it’s the Taiwanese investors. They buy because of unfairly low taxes”, says Chang Chin-oh, professor for land economics and member of Land Bank of Taiwan’s board of directors in an interview given to Asia Times Online.  “Mainland Chinese speculators won’t do much in Taipei since there are too many restrictions. And first and foremost, there simply is much more money to be made on the mainland market.”

The Land Bank of Taiwan Prof. Chang Chin-oh works for is a state-owned bank that is specialized in handling real estate and agricultural credit.

The restrictions put in place by Ma Ying-jeou’s government make Taipei an unlikely playground for mainland speculators. Members and officials of China’s Communist Party, the military or any other political organization are prohibited from buying property in the first place. The regulation that real estate purchased by mainland buyers can’t be transferred within a period of three years make quick moneymaking schemes with residential property nearly impossible for Chinese speculators.

According to Professor Chang, there are two types of Chinese companies that buy commercial property in Taiwan. The first group consists of well established Chinese enterprises that need to be represented on the Taiwanese market by branch offices. These buyers are in Taipei to stay. The second group is made up by mainland companies that are engaged in joint ventures or to study Taiwan’s know-how in doing business. Taiwan has decades more of experience with capitalism than China. Mainland restaurant chains for example often see Taiwanese companies as models they can learn from. This group of buyers of commercial property has the intention of mid-term engagement in Taiwan. Neither group plays a significant role in real estate speculation, so Professor Chang.

The Taiwanese businessmen, the taishang, accumulated huge wealth overseas and mainly on the mainland. It started in the early nineties and according to the Chinese Ministry of Commerce there are more than 80,000 Taiwanese-invested projects on the mainland, involving 50 billion U.S. dollars of direct investment. Taiwanese industrialists like Terry Guo, founder of Hon Hai Precision, the company that produces iPod and iPhone have always bought luxury housing units in Taipei but the number of taishangs who follow suit is growing. That, says Prof. Chang, has something to do with inappropriate government policy. He explains: “The government sees high housing prices as the fundament for the economy. They not only don’t dare to let prices go down, with extremely low taxation they even give more incentives to buyers.”

More obvious than the reasons of high housing prices in Taipei are the repercussions. Medium and low-income Taiwanese are ever more unlikely to be able to buy houses in Taipei. Instead of putting rising real estate prices in check, the government responds with the construction of affordable residential units in satellite cities. These houses are meant for young families who can now only dream of purchasing property in the Taipei city area. Construction sites are along a planned subway line that is going to connect Taipei with Taiwan Taoyuan International Airport.

Some analysts believe that it is wrong that the government encourages young families to buy with cheap credits in a time when real estate is so expensive. If house prices eventually go down one day, the families in the satellite cities will suffer from an especially painful contraction of their assets’ value because particularly this part of the population tends to put all their eggs into one basket in terms of savings.

The public sees the government as helping medium and low-income families, but in the eyes of opponents it is obvious that developers and construction companies profit most from the building boom at Taipei’s outskirts.

To Prof. Chang, the shortcomings of government’s policies become evident when looking at the sheer number of empty houses in the heart of Taipei. He says that 13% of houses in the city area are left unused. “Most people aren’t aware of this, but if you take a stroll at night, you can clearly notice building where lights are always turned off”, he describes.

According to Prof. Chang, in the discussions around ECFA all sides seem to exaggerate the pact’s importance. The government tells the people ECFA will attract much needed Chinese investment whereas the opposition flatly declares Chinese capital influx to be toxic. As a result the scale of both chances and dangers closer cooperation between China and Taiwan will bring about are likely to be overestimated.

It seems as if the real players in the Taipei property game are developers and the taishang but actually this could be only half the truth. In an interview, a Taiwanese real estate broker paints the taishang as a busy bunch, too busy to engage in Taipei property speculation. He says: “It’s not the taishang who invest, it’s their wives. The husbands work in China, and the wives are left behind in Taipei. They play with real estate investments because they are bored.”

 

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