Signs pointing to local realty bubble: minister
By John Liu ,The China Post
January 3, 2014, 12:02 am TWN
TAIPEI, Taiwan -- The real estate market has been going strong for a decade, and there are many warning signs that point to the emergence of a real estate bubble in Taiwan, Finance Minister Chang Sheng-ford (張盛和) said yesterday.
No one knows for sure when the bubble will burst, but it is the policy of the Ministry of Finance to “let the air out gradually,” Chang said.
Housing prices are normally 3 to 5 times higher than average annual earnings, but housing prices in Taiwan are 10 times that of the average annual income. In addition, other indicators, such as the ratio between rent and earnings, the proportion of mortgage to GDP and vacancy rates all show that there is a housing bubble, Chang said, adding that of 10 major real estate indicators, 6 to 7 show that Taiwan is in a housing bubble.
Of all the indicators, an exceedingly high housing price to earnings ratio as well as mortgage to GDP ratio, and extremely low rate of return from rental income, show that Taiwan may have a housing bubble, Chang said.
As it is taking longer to complete a real estate transaction, and with the room for price reduction getting larger, there are several signs that the housing market is gradually turning into a buyer's market, Chang noted.
Uncertainty around the Bubble
While a bubble is forming in Taiwan, when or if it will burst is unknown, Chang said, adding that it is why the government made a slight adjustment to the luxury tax. The goal is to prevent a bust and “let out the air gradually.”
Under the luxury tax, if a property acquired not for personal use is sold within two years of its purchase, a tax rate of 10-15 percent is levied on the sales price. The aim is to curb short-term selling, which is blamed for pushing housing prices even higher.
According to Chang, the area where supply exceeds demand the most is most likely where the bubble begins to burst. Nevertheless, once the bubble breaks, the whole real estate market will be affected, Chang said.
Chang said that investors should not blindly jump in the real estate market, and that people should only make purchases if there is a real need, and in this way, the housing bubble will not continue to swell.
Taipei's Housing Prices Rank Third in Asia
According to a survey conducted by Abundance Real Estate (長富地產), rises in Taipei housing prices surpassed those of Hong Kong and Singapore in the past year, and the rise was ranked the third among Asian cities, only behind Kuala Lumpur and Manila.
The survey shows that housing prices in Kuala Lumpur rose 17.18 percent in the past year, while they rose 11.09 percent in Manila and 9.92 percent in Taipei.
Housing prices rose 7.76 percent in Hong Kong, 7.1 percent in Shanghai, 6.3 percent in Tokyo and 2.1 percent in Singapore.
According to Abundance, Malaysia saw double-digit housing growth in the past five years, while its capital Kuala Lumpur saw the highest rise in Asia. The growth was attributed to an improved business environment and more people making investments in Malaysia, Abundance said.