Speculation location no. 1: Tainan

When a CommonWealth reporter’s maternal grandfather died, he left behind a plot of farmland near the Tainan section of the Southern Taiwan Science Park that in the future will be surrounded by an expanded special district surrounding the park.

Based on the government-assessed “current land value,” the plot is worth NT$19,000 per ping (about US$207 per sq.m., 1 ping = 3.3 square meters), but an anonymous woman offered NT$50,000 per ping for the 800 ping plot, an amount that would put NT$40 million in the family’s pockets.

(Source: Ming-Tang Huang)

Curious at what was transpiring, the reporter returned to her grandfather’s land where he used to grow rice and where her aunt was now growing vegetables. She noticed that the rice field that once extended as far as the eye could see had become a factory in the science park. To the right was Taiwan’s bullet train line, to the left two 30-story steel frame high rises with presale units selling for a record NT$369,000 per ping.

The fate of rezoned farmland 

In Liantan village in Shanhua District about five minutes away by car, one sees several communities with American-style villas, and European sports cars abound on nearby roads.

(Source: Ming-Tang Huang)

“This all used to be farmland. How has it turned into this?” asked the reporter’s aunt who has lived in Shanhua for 70 years and cannot believe how much things have changed. Housing prices there have reached NT$250,000 per ping.

Speculation has not only hit Liantan village. Housing in the rezoned Jiufenzi development area in Tainan’s Annan District, which used to be dedicated to fish farming, now goes for NT$450,000 per ping, and prices have hit NT$640,000 per ping in Yanxing village in the city’s Yongkang District. 

Nowhere to go, prices rising everywhere

The numbers confirm that Taiwan’s real estate market is undergoing its biggest bout of speculation since the 1980s.

In compiling data on 70,000 transactions of presale homes, CommonWealth found that in 25 of the districts in Taiwan’s six major metropolitan areas (Taipei, New Taipei, Taoyuan, Taichung, Tainan, and Kaohsiung) and Hsinchu County, presale housing prices have risen more than 30 percent in just the last seven quarters. The 5 percent quarterly rise far eclipsed the less than 1 percent a year earned on time deposits in banks.

That contrasts sharply with the property price surge in 2015, which was generally limited to the Greater Taipei area. This round of real estate speculation has spread to all parts of Taiwan, and is even being led by urban centers in central and southern Taiwan. Of the 25 districts where prices have risen the most, eight are in Taichung, six are in Tainan and five are in Kaohsiung. The biggest price jump since early 2020 of 91 percent was in Tainan’s East District.

Speculation location no. 2: Kaohsiung

TSMC has arrived, but housing unaffordable

In Kaohsiung, the new hot spot for real estate has migrated from the city’s main downtown area north to a corridor consisting of Renwu, Zuoying and Nanzih districts, buoyed by the successive groundbreakings of the Renwu Industrial Park, Nanzih Technology Industrial Park, and Qiaotou Science Park.

Hsieh Che-yao (謝哲耀), president of the Kaohsiung Association of Real Estate Brokers, said the city has had three main economic transitions that have affected the property market. The first came decades ago when Kaohsiung became a hub for heavy industry. The second came about 15 years ago with the development of the tourism sector, and after a long hiatus, “this wave is being driven by high-tech talent.”

(Source: Ming-Tang Huang)

Traditionally, the main customers for new housing developments in Kaohsiung have been local buyers, but today about 20 percent come from northern and central Taiwan and many are employees of high-tech companies.

Hsieh said Kaohsiung’s real market is ripe for the picking by engineers in the tech sector because of its relatively low pricing. For them, presale homes selling for NT$8 million, which require a NT$200,000 bonus with the signing of the contract and the rest of the down payment to be paid in installments over two years, are easily affordable investments.

Many politicians have advocated increasing the supply of land to stabilize housing prices through the logic of the market, thinking a larger supply could drive prices down. So the government has rezoned land, sold land to developers, and provided presale homes as solutions designed to solve the problem.

Public land sales backfiring? 

Government land sales in fact peaked after housing prices started to take off in 2018, but instead of stabilizing housing prices, the land sales themselves continued to set new pricing records, according to the Ministry of the Interior’s Housing Price Index.

In the past four years, Tainan has sold over 110,000 pings (36.4 hectares) through public land auctions, 21 times more than the previous four years and the most of any city or county in Taiwan. Ranking second and third, respectively were Kaohsiung and Taichung with sales of 96,000 pings. 

Mayors and county commissioners have used urban planning and rezoning to drive development and obtain financial resources, which has made land more profitable and benefited local developers. 

Ten years ago, residents in the town of Dapu in Miaoli fiercely opposed the county government’s attempt to expropriate farmland in the area to expand the Zhunan Science Park and protested its forced demolition and relocation of a handful of homes. The plan at the time was to rezone half of the land for industrial use and the other half for residential units.

Ten years later, a CommonWealth reporter discovered that according to the plan drafted by Tainan’s Bureau of Urban Development only four of the nine blocks of land expropriated around the Tainan Science Park were designated as industrial support zones, with residential buildings still allowed to be built in two of them. The other five blocks were designated as “life services zones,” meaning that seven of the nine blocks could be devoted to residential complexes, a far higher percentage than in the Dapu controversy.

(Source: Ming-Tang Huang)

The rezoning policy has fueled the soaring cost of real estate in the city, as seen in the East District, home to the fastest rising prices in Tainan. After the land for the 40-hectare 2nd Redevelopment Zone was rezoned, several major developers flocked in to launch luxury home projects. Locals have nicknamed it “Tainan’s Xinyi Special District,” referring to the upscale area in eastern Taipei. 

In Kaohsiung, the government has spent a substantial amount of money to clean a polluted plot of land so that TSMC, the world’s leading contract chip maker, could move in. But anticipation of TSMC’s arrival has sent prices in the area skyrocketing. 

A manager with international consulting AECOM said angrily: “Didn’t the father of the country say that increases in the price of land belong to the public? In Taiwan, it turns out that price increases end up in the pockets of private interests.”

No room for social housing?

He said that in the West and even in China, governments tend to reserve space for social housing in urban renewal developments before they commit substantial resources to those projects.

President Tsai Ing-wen (蔡英文) and Taipei Mayor Ko Wen-je (柯文哲) both espoused a similar spirit during their first election campaigns in 2016 and 2014, respectively, strongly advocating social housing. Yet with both close to halfway through their second terms, they have fallen far behind their original pledges.

The question, however, is does Taiwan really need so many houses? Peng Chien-wen (彭建文), a professor in National Taipei University’s Department of Real Estate and Built Environment, noted that Taiwan’s population began to decline last year, and the gradual downtrend will have a major impact on the fundamentals of the real estate market.

Taiwan’s extremely low birth rate and unaffordable houses are closely linked. If young people choose to buy an apartment, they cannot afford to raise children, and those that have children cannot afford a house. At this point, these two phenomena seem intractable, which is likely why the declining birth rate may be irreversible.

(Source: Ming-Tang Huang)

According to Deputy Interior Minister Hua Ching-chun (花敬群), “Buying a presale house right now is very risky because the number of households in Taiwan will hit its peak in the next 5-10 years, 

Speculation location no. 3: Taichung

Extreme use of presale ‘red receipts’

Why is it that every new housing project around Taiwan seems to be selling out? The answer lies in the so-called “red receipt” system for presale houses.

Issued before the purchase and sale agreement for a pre-sale apartment is signed, the “red receipt” is a receipt confirming its reservation. To obtain one, a buyer simply puts down a deposit to reserve the right to purchase the property. 

But these red receipts have turned into a money-making commodity, with buyers transferring them to others at a higher price and pocketing the difference. 

(Source: Ming-Tang Huang)

The redevelopment zone in Buzi in Taichung's Beitun District is a perfect example of an “egg white” development project – one located in a suburban area that surrounds an urban center (the “egg yolk”).

“The percentage of investors buying these units has risen. They find that putting their money in presale homes is better than depositing it in a bank,” observed Weng Yu-ling (翁毓羚), the chairperson of Taichung developer Zongtai Real Estate Development Co.

When Zongtai launched a residential development four years ago, 91 percent of the units were purchased for the buyers’ own use. That number fell to below 80 percent in a project it put on the market in April this year.

One member of this investor class is a Miss Yang, who bought five presale units in Beitun in a three-month period before a new house and land transactions income tax, designed to discourage the quick turnover of property, took effect in July.

A real estate agent by profession, Yang made NT$3 million on the sale of her first home and used it as capital to start investing in properties herself.

Bypassing mortgage limits

She quickly zeroed in the presale market because of the minimal initial cash outlays required, and the ability to buy three units with the profits from the sale of a single unit. In three years, she has sold the rights to more than 10 presale homes, making at least NT$1 million on each transaction that has earned her a 60 percent return on investment. At present, she owns five presale residential units and two existing homes.

In 2021, the central government tried to prevent property hoarding by limiting the amount investors can borrow to buy a fourth property or beyond to 50 percent of the purchase price. But for high-paid engineers with steady incomes or deep-pocketed investors, the measure has had little bite because they can get personal loans at interest rates of 2-3 percent, only about a point higher than the cost of a mortgage.

“`Banks are desperate to loan money to us,” said Isaac, a tech engineer in Taichung who is not the least concerned about getting financing. 

The new anti-speculation measure also extended the 45 percent tax rate on capital gains from sales of properties held for up to two years, rather than one year previously, a provision that well-off investors can get around simply by holding their properties for longer than before.

And Taiwan’s relatively low property taxes leave investors unafraid of holding on to properties over the longer term. Lee Ming-hsuan (李明軒), a professor in National Sun Yat-sen University’s Department of Political Economy, the average effective property tax rate in Taiwan is 0.12 percent, a burden far below that seen in the world’s major cities.

The negligible rate results not from a nominally low tax rate but from a valuation method out of touch with reality. 

The basis used for calculating land taxes – the “assessed land value” as estimated and announced by the government – averaged only 19.8 percent of the actual value of land around Taiwan, according to local studies.

Local tax cuts benefiting the wealthy 

“The buying and selling of property is the greatest source of inequity in Taiwan,” said a study by Cyrus Chu (朱敬一), an Academia Sinica academician and former head of the National Science Council.

According to tax data, the main sources of income for the wealthy are stock dividends and capital gains on real estate. For the top .01 percent among them, capital gains on real estate represents nearly half of their income. 

(Source: Ming-Tang Huang)

In 2017, that elite group made an average of NT$25.37 million from land transactions, 746 times the national average. The disparity resulted largely from the frequency with which wealthy Taiwanese buy and sell property. 

Lee of National Sun Yat-sen University said the higher housing prices rise, the higher the number of people who have to take on mortgages, making them more reluctant to start a business or change jobs. 

“For many people who are less well off, their home is all they have left and life is a struggle, to the point where they’re not even willing to take trips,” she said, noting that when people are reluctant to consume, the economy suffers.

As houses swallow up the countryside, and farmland becomes covered with cement, could rapidly aging Taiwan follow in the footsteps of the Japanese asset price bubble that burst in the early 1990s?

That is a future scenario Taiwan can ill afford to ignore.

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Translated by Luke Sabatier
Uploaded by Penny Chiang