Why has Taiwan become a haven for real estate speculators? The answer is that the cost of "hoarding" real estate is negligible compared with that seen in several industrialized nations.

Real estate owners in Japan pay 42.5 times more in annual property taxes than the Taiwanese pay for a house or apartment of the same value. In the United States, property taxes are 25 times higher. It's no wonder then that some people in Taiwan own several homes while an exasperated younger generation finds that buying a home is nearly impossible.

Germany: Punishing Speculation Harshly

The Germans hold fundamentally different ideas on housing. Hsu Shih-jung, a professor at the Department of Land Economics of National Chengchi University, says Germany believes that the housing market is monopolistic and housing is an essential good, and speculation to make exorbitant profits must not be allowed.

In contrast, the Taiwanese regard land as a means to get rich. The higher prices they can extract, the better.

The Germans believe that land and houses differ from ordinary freely tradable commodities in that there is a fundamental human right to housing. Based on this principle, Germany has formulated strict tax laws to suppress real estate speculation and has even made housing speculation a criminal offense to protect the right to housing.

For instance, when selling a property in Taiwan, sellers can ask for as high a price as they want as long as buyers play along and willingly accept the offers. In Germany, however, the situation is different. If the asking price for a property exceeds the benchmark price by 20 percent, the real estate agent can be slapped with a penalty of up to 50,000 euros (about NT$1.9 million). If the asking price is 50 percent above the benchmark price, the agent may face a three-year prison term on top of a hefty fine if found guilty of malicious speculation.

Furthermore, Germany imposes a stiff capital gains tax on profits from the sale of real estate [within ten years after acquisition]. Germany levies a "speculation tax" of 15 percent or more on proceeds from the sale of a property that has not yet reached the 10-year holding period. In comparison, Taiwan levies a much lighter "specifically selected goods and services tax," popularly known as the luxury tax, of 15 percent on proceeds of second homes sold within a year of purchase and 10 percent on those sold within two years of acquisition.

In neighboring Japan, real estate prices are stable, having risen less than 3 percent over the past five years. Such stability in the housing market is due to the high cost of real estate transactions.

Lin Wan-ken, convener of the Consumers' Foundation Housing Committee, points out that under Japan's Act on Special Measures Concerning Taxation, any property that changes hands within five years of its purchase is considered a short-term transaction. Such short-term deals are taxed at a high rate of 39 percent (30 percent national tax, 9 percent local tax). The tax rate decreases to 20 percent for transactions on property that has been held between five to ten years.

Japan: Two-pronged Approach on Speculation

Transaction taxes only hurt when a property is eventually sold. What actually prevents the Japanese from acquiring several homes for speculative purposes are taxes on property ownership. In Japan, the cost of holding real estate is very high. Property owners must pay an annual fixed property tax and a city planning tax.

The tax base for the fixed property tax, which stands at 1.4 percent, is the property's market value. The city planning tax differs based on the location. In prime real estate areas near the city center the tax rate can be as high as 0.3 percent of the property's market value. Both taxes combined can add up to a real tax rate of up to 1.7 percent.

In comparison, property ownership in Taiwan does not come at a high price. There are two annual property taxes: a land value tax and a house tax. The land value tax is 0.2 percent (for homes used as the owner's primary residence) or 1 - 5.5 percent (for non-residence properties) of the land's government-assessed value, which is just one-fifth of the market price.

The house tax is 1.2 percent (for homes used as the owner's primary residence) or 2-3 percent (for non-residence properties) of the government-set "current assessed housing value," which has remained unchanged for three decades and values homes at less than half of their actual market value. (The house value is usually less important than the land value in the overall assessed value of the property).

In other words, the real tax rate on real estate ownership in Taiwan can be as low as 0.04 percent per year of the property's market value. The owner of a home worth NT$10 million in the center of the capital may pay as little as NT$4,000 in annual property taxes in Taiwan. In Japan, however, he would have to pay the equivalent of a much stiffer NT$170, 000, or 42.5 times as much. It is blatantly obvious that property speculation and the "hoarding" of multiple homes for speculative purposes are not costly in Taiwan.

How about the costs of holding property in the capitalist United States?

Prof. Hsu explains that the capital gains tax on proceeds from real estate transactions differs across the United States but averages around 30 percent since the highly autonomous local governments are forced to raise part of their budgets through local taxes. With a tax rate of 1 percent on property ownership, the tax burden is 25 times higher than in Taiwan.

Raising the cost of property ownership in Taiwan is not difficult – local governments only need to have the courage and resolve to impose such taxes. Since Taiwan's property tax rate does not differ much from that in other countries, the core of the problem is how the property's value is calculated. Assessment committees formed by the local governments themselves decide the government-declared land value and the current assessed housing value. 

Hsu points out that the local governments should not pass the buck to the central government. By adjusting the assessed values upward and closer to market values, they could immediately generate revenue. Extreme "hoarding" of homes such as one individual owning 100 homes could also be eradicated.

The principle that land and property should serve the public benefit – laid down in the Basic Land Act promulgated by Japan in 1989 – could serve as reference for Taiwan. The Act's core principles are: 1) giving priority to the public good in land use; 2) restricting speculative land transactions; and 3) imposing an appropriate tax burden on landowners when the value of their land increases thanks to infrastructure development, urban renewal and other external causes.

"Housing justice" should not remain a mere slogan in Taiwan. Instead, it should be put into practice through legislation and policy.

Translated from the Chinese by Susanne Ganz