On August 26, 1989, an estimated 40,000 people staged a sleep-in on Zhongxiao East Road, one of the most expensive areas of Taipei City, to protest high residential housing prices. The demonstration, the largest since martial law had been repealed in July 1987, was organized by Citizen’s Solidarity Against Urban Speculation (CSAUS), a group formed by primary school teachers and graduate students majoring in urban planning and development.
In the years following the widely publicized 1989 sleep-in, CSAUS gave rise to three civic groups: the Organization of Urban Reforms, Snails Without Shells and the Tsuei Ma Ma Foundation for Housing and Community Services. All three groups are still active, but their goal of reforming residential housing prices has remained frustratingly elusive. For example, an annual survey commissioned by the Construction and Planning Agency under the Ministry of the Interior (MOI) and conducted by the Institute for Physical Planning and Information (IPPI) shows that in 2010, houses sold for an average amount equal to 8.9 times Taiwan’s annual household income.
The survey also showed that the cost of owning a home was highest in Taipei City, where the prices climbed to 14.3 times income, followed by New Taipei City, where they reached 9.4 times income. Looking at the high cost of ownership in another way, in 2010 monthly mortgage repayments accounted for a staggering 56.2 percent of monthly household income in Taipei City and 38.1 percent in New Taipei City.
In Taiwan as in most countries around the world, home ownership has long been a big part of the middle-class dream. The problem is that for many wage-earners, particularly those living in Taipei City, rapidly rising housing prices mean that years of hard work and careful saving are still not enough to attain that goal.
The frustration and resentment that gave rise to the housing rights movement in the late 1980s have largely carried over to today, although a measure of relief may be at hand. “Twenty-odd years have passed since our large-scale campaign in 1989, but not much progress has been made in suppressing property speculation and improving housing welfare,” says Lu Ping-yi (呂秉怡), spokesman of Snails Without Shells. “Until recently, the only progress that we’d seen was an amendment to the Income Tax Act in 1999 that allowed taxpayers to deduct rental expenses, followed by the Ministry of the Interior beginning to provide subsidies for rent and home loan payments for economically disadvantaged people in 2007. It wasn’t until late 2011 that we saw any further improvement.”
Local activists have adopted the symbol of a snail to promote housing rights. In Taipei, buying a “shell” is becoming increasingly difficult for many wage-earners. (Photo Courtesy of Snails Without Shells)
The recent progress Lu refers to came on December 13, 2011, when the Legislative Yuan passed the Housing Act, which calls for the construction of “social housing,” or government-financed, rent-controlled housing for low-income people who do not own homes, as well as approved amendments to three acts governing the real estate market that target slowing the rise of housing prices.
Problem of Speculation
The pertinent question to ask, of course, is why the cost of housing had risen so much that government intervention was necessary. The answer, as it turns out, is that today’s high prices are the result of a combination of years of too much investment and too-low taxes. “In Taiwan, high housing prices are a problem of speculation, as people think they can make a profit out of real estate, which has become a commercial product,” says Chang Chin-oh (張金鶚), a professor in the Department of Land Economics at National Chengchi University. “Due to overinvestment and overconsumption, property prices have shot up in recent years.”
After a crash in the 1990s, real estate began appreciating again in 2003 after it became apparent that the country would escape the severe acute respiratory syndrome, or SARS, epidemic relatively unscathed. Then, in 2008, investors seeking to ride out the worldwide recession began shifting funds out of plummeting securities markets and into real estate. Since then, the political stability and improvement in cross-strait relations after President Ma Ying-jeou (馬英九) took office that year have encouraged overseas Taiwanese businesspeople to remit funds back to Taiwan, with many choosing to invest those funds in the property sector, according to Wang Ying-jie (王應傑), a standing board member of the Federation of the Real Estate Development Associations.
Barring a sudden change in market conditions, housing is likely to continue being a singularly attractive investment. Low interest rates make savings accounts and money-market funds unattractive, while lingering concerns over European debt levels dissuade many investors from buying stocks and mutual funds. In contrast, the high returns of investing in real estate can be seen in the results of a study published by the Chinese-language My Housing Magazine in January this year, which showed that average presale home prices in Taipei City had appreciated by almost 119 percent over the preceding 10 years, while those in New Taipei City had risen by 100 percent.
The country’s low real estate taxes have contributed to the housing investment trend, says Hua Chang-i (華昌宜), a researcher at IPPI. In Taiwan, the average amount of real estate tax levied on a given piece of property is just one-tenth of the level in the United States, he says. That is true despite the fact that Taiwan actually levies two property taxes: one on the land a house or apartment occupies and another, the so-called “house tax,” on the structure. Neither tax is levied on actual market value, however, but rather on values determined by local governments’ assessment committees. The committees take transaction prices reported by real estate agents into account when determining the value of a property’s land and structure, as well as an area’s socio-economic conditions and the effect of the tax burden on homeowners. That murky situation is further obscured by the fact that only the “publicly declared land value” is viewable by the public. The bottom line is that as the combined house tax and publicly declared land value typically trail well behind actual market value, local real estate investors face a relatively minor burden even if they own multiple properties.
A young couple considers buying a home at a reception center for a planned housing complex. The cost of owning a home in Taipei City rose to 14.3 times annual household income in 2010. (Photo by Huang Chung-hsin)
Low taxes are at least partly to blame for the growing number of vacant properties around Taiwan, too, as investors can afford to let properties sit empty until their prices rise enough to turn a tidy profit. Hua notes that the country’s home vacancy rate climbed from 13.3 percent in 1990 to 17.6 percent in 2000 and on to 19.3 percent in 2010. Thus, at the same time property prices were rising, more and more homes were left sitting empty. Such a development would appear to run counter to the law of supply and demand, according to which an increasing amount of vacant properties ought to lead to a reduction in prices. “The only explanation behind this strange phenomenon in Taiwan is that most of the unoccupied residences are not put out for sale or rent. Instead, they are stocked up as assets just like gold,” Hua says. “Why do Taiwanese like to hoard houses? One thing is that the cost of hoarding them is minor when compared with expected increases in their value over time.”
While low taxes and investor speculation affect the housing market islandwide, real estate prices in Taipei City reflect two additional pressures. The first is that city lies in a basin surrounded by mountains, so developable land is scarce and expensive. The second is that, as Wang notes, Taipei is Taiwan’s biggest job market and thus attracts workers from every corner of the nation, which puts a strain on the housing supply and results in higher property prices.
In response to Taiwan’s speculative property investments and soaring home prices, in 2010 the Council for Economic Planning and Development invited experts, scholars, representatives of the real estate sector and members of civic organizations to discuss ways to make housing more affordable. Accordingly, a number of schemes aimed at attending to the housing needs of lower and middle-income earners were formulated. Remedies proposed at the meeting included providing affordable housing, publishing real estate transaction information, reviewing the land value tax and the house tax, tightening lending criteria for property investors, launching urban renewal projects and enhancing public transportation systems connecting city centers and suburbs to relieve population pressure in downtown areas.
Taxing Luxury
A recent measure taken in part to slow the rise of housing prices was the promulgation of a luxury tax in June 2011. The tax targets several categories of high-value goods, but for real estate, it is designed to reduce speculation by imposing a tax of 10 to 15 percent on properties that are purchased and then resold in less than two years. According to Chang, however, while the tax has been a good anti-speculation measure, it has only had a short-term effect on housing prices. Market data backs his assertion, as although the volume of home sales has decreased markedly, sales prices have seen but a slight dip, with one Taipei realty company reporting there had been just a 3.1 percent drop in prices from May 2011 to November 2011.
As noted by Lu, the Legislative Yuan’s actions in December 2011 might have more of an impact on housing prices. Those actions include passing the Housing Act, which targets the construction of more affordable housing, as well as amendments to the Real Estate Broking Management Act, Land Administration Agent Act and Equalization of Land Rights Act. The amendments require a property’s actual sales price to be entered into the government’s registration records within 30 days of the completion of a sale.
A real estate agent, center, introduces properties to an interested couple. Amendments approved in December last year require real estate buyers and brokers to register actual transaction prices to promote market transparency. (Photo Courtesy of Eastern Realty)
Hsiao Fuu-dao (蕭輔導), director of the MOI’s Department of Land Administration, says his department collects transaction data from real estate agents and land offices of city and county governments nationwide. Since 2010, information about the price, size, layout and location of a property has been viewable by the public at ehouse (ehouse.land.moi.gov.tw), a dedicated website launched by the MOI. Due to the recent housing law amendments, on July 1 this year ehouse will also begin listing the actual sales prices instead of prices collected from real estate agents, which, in this case, are believed to be commonly inflated to boost sale prices. The website will also list more details including a property’s age, structure and on which floor an apartment is located, if applicable.
Hsiao explains that the MOI is still working on the issue of how much information about the specific location of transacted property to disclose. Ehouse currently does not list the actual street number of such properties for privacy reasons, as it is relatively easy to use full addresses to identify owners. Hsiao says that it is likely that the eventual locality information will be as specific as a block or a street section consisting of a certain number of buildings.
In the long run, Hsiao expects the requirement of registering actual transaction prices instead of prices reported by real estate agents to improve the existing database by providing more detailed and reliable information. Meanwhile, he says the MOI will screen the registration records to ensure their accuracy and will remove extreme cases with exceptionally high transaction prices to prevent real estate brokers from using sales of overpriced homes to drive up overall housing prices of a certain area.
“From a positive perspective, the passage of the legislation marks a step forward in tackling the housing problem,” Chang says. Lu concurs, saying that registering actual transaction prices is a beneficial move, as real estate sellers and brokers will not be able to use their control of price information to inflate home values as in the past. Although he is a member of the real estate industry, Wang says he also supports the government’s registration of actual transaction prices as a way to regulate the property sector and reduce property owners’ inclination to leave their assets idle.
Another odd feature of the local housing market is that although home prices are high, rents are relatively low. Consequently, some property owners do not bother to rent out their vacant houses and instead just wait until the time is right to make a profitable sale. According to Global Property Guide, a UK-based website that provides real estate information from around the world, the gross rental yield in Taipei is 1.57 percent, among the lowest worldwide. By comparison, rental yield is more than 4 percent in other major cities including Amsterdam, Bangkok, London, New York, Tokyo and Toronto.
Members of the Social Housing Advocacy Consortium call for housing justice in April 2011. The consortium comprises 13 civic groups. (Photo Courtesy of Snails Without Shells)
With such high property prices and low rents, it no longer makes financial sense for some people to buy homes. “The government’s housing policy shouldn’t stress ownership anymore,” Chang says. “Rather, it should first take care of people’s basic housing needs and emphasize rental housing. In addition, we question the feasibility of the government’s measures to offer preferential loans to encourage young people to buy a home, as that may just turn out to promote [high] housing prices.”
Similarly, IPPI researcher Hua Chang-i maintains that the government needs to develop the rental market by making more social housing units available for rent and offering tax breaks or other incentives to encourage property owners to rent out their properties. Wang goes a step further, suggesting that the government should first look into public properties that are lying idle and renovate or otherwise transform them into housing units for rent.
Chang also suggests that instead of going it alone in the effort to revamp the rental market, the government should cooperate with nonprofit organizations like the Tsuei Ma Ma Foundation for Housing and Community Services, which has long been dedicated to rendering low-cost services for renters. Tsuei Ma Ma could provide vital input on the management of social housing units and idle properties, he says, as well as assist in the establishment of a complete rental platform for landlords and tenants. A well-run platform would help ensure the quality and safety of rental units, which would improve the rental market, Chang says.
As for existing social housing that offers accommodation at low rents, Snails Without Shells spokesman Lu says the current government policy seems designed to place a higher priority on the needs of young people than the underprivileged, as only 10 percent of the rent-controlled housing is reserved for the latter. Lu says that his organization would like to see that figure reach at least 30 percent, a level adopted in public housing policies in many other countries.
Lu considers the requirement to register actual transaction prices with the government to be only a preliminary step, rather than the big leap that will ensure a healthier housing market. That is because while real transaction prices will soon be reported in line with the amendments, taxes will still be levied according to government-assessed values. “The fundamental approach to curbing real estate speculation by business conglomerates and construction companies is tax reform—taxing property transactions based on actual sales prices,” Lu says. “Only by promoting information transparency together with a fair taxation system can we create a sound property market and bring housing prices down to reasonable levels.”
At just one-tenth of the level in the United States, Taiwan’s low real estate taxes have led many to purchase housing as an investment. (Photo by Huang Chung-hsin)
National Chengchi University’s Chang agrees, saying that levying taxes on real transaction prices would effectively impede speculation and profiteering over the long run. The amended acts do not go far enough, he says, noting that “the stipulations disallow taxation on actual property transaction prices unless accompanying measures are formulated to restrict the degree to which information is transparent. That’s why they still create obstacles to realizing housing justice.”
Chang believes that politics played a role in diluting the amendments. Civic organizations and social activists had pushed for the Housing Act and amendments to the three housing-related acts for years, he says, but passage only occurred in December 2011 because politicians believed that doing so would boost their chances in legislative and presidential elections held on January 14 this year. Chang says that since the act and amendments were passed within a relatively short time, the legislative framework is incomplete because some critical clauses were not included and the information disclosure requirements did not go far enough. The ratified versions apparently were a result of negotiations and concessions between political parties, he opines.
The legislation may be imperfect, but it gives hope to many who would like to one day have their own home. Jack Hsu (許傑明) is a single 40-year-old bank manager who lives with his parents. Hsu says he is glad to see that apart from offering incentive packages to first-time home buyers, the government has also implemented a series of measures to crack down on real estate speculation. Those regulations, he adds, seem to be working to some extent, as the property market has cooled off slightly and some construction firms have expressed willingness to cut sales prices.
“I believe that many people like me wish to own a home, but have been deterred by the high prices,” Hsu says. “I’m always wondering if it’s worthwhile to spend so much money buying a place. I know if I buy, I’ll have to reduce a lot of my other spending. For example, I’d have to cut down on travel, and that could affect my quality of life. I hope that housing prices can come down to reasonable levels so that buying a home can be a dream come true, or at least a viable option for many people.”
Write to Kelly Her at kelly@mail.gio.gov.tw