For years, no investment has been quite like it. Gold has not appreciated as much and dividends paid by Apple Inc. stock do not come close. Instead, at least for those who can afford it, the smart money has been on Taipei real estate. The high returns of investing in real estate can be seen in a recent study that showed average presale home prices in Taipei City have more than doubled in 10 years.
The country’s low real estate taxes are one of the main reasons behind the popularity of housing investment. Taiwan’s nominal real estate tax averages 1 percent, but that tax is not paid on assessed market value. Instead, the taxable value is determined by assessment committees at the local government level that account for factors like an area’s socio-economic conditions. As a result, real estate tax paid in Taiwan averages about one-tenth of 1 percent of market value.
With such a low tax, investors can buy multiple properties and then let them sit empty while prices rise. In fact, that low tax burden is likely the biggest cause of Taiwan’s high home vacancy rate, which stood at 19.3 percent in 2010. So many empty homes mean that real estate prices continue to climb to levels that prevent even people with good jobs from buying a home. That frustration was clearly shown in a 2009 government survey, which found that the high cost of urban housing was the public’s biggest grievance.
The government has responded to the housing problem by taking a multi-pronged approach. As for policy, in December 2011 the legislature passed the Housing Act, which targets affordable housing, as well as amendments to the Real Estate Broking Management Act, Land Administration Agent Act and Equalization of Land Rights Act that require the entry of a property’s actual sales price into government records within 30 days of a sale. In the past, such prices were reported by realtors who sometimes inflated home values, so the coming change will give the government a truer picture of housing prices. To dampen real estate speculation, in June 2011 the government also began imposing a tax of 10 to 15 percent on properties that are purchased and then resold in less than two years.
As for increasing the supply of affordable housing, the government has launched a spate of recent initiatives aimed at building homes that will be sold, rented or leased for 70 years, all at well below market prices. One of the initiatives, for example, targets building units in the Taipei area to be leased to economically or socially disadvantaged households. The private sector is pitching in by endeavoring to build attractive communities in areas where lower land costs reduce purchase prices. Meanwhile, in February this year, Minister of the Interior Lee Hong-yuan (李鴻源) said the government would work to create new towns outside populous urban areas that would act as a brake on real estate prices and promote regional development. The new towns could attract residents by including facilities like schools, parks, and department stores, Lee suggested.
With measures including reporting of actual real estate transaction prices, a tax on short-term speculation, the building of new towns and plans to provide affordable housing through a variety of creative projects, Taiwan’s housing problem is being attacked from multiple sides. While the thorny issue of taxing real estate on an amount closer to market value remains, the government is committed to ensuring that more of Taiwan’s hard-working people will be able to realize the dream of buying their own home.