The Taiwanese and Japanese property bubbles were cast in the same mold, but fortunately Taiwan's electronics industry provided it with a buffer in the early 1990s, allowing the island to avoid the implosion of its real-estate bubble. After an eight-year-long "soft landing," people thought that the Taiwan real-estate market had largely cleaned the bubbles out of its system. But then the Asian financial crisis struck and the economy went into a slump. This has caused business groups to bounce checks and introduced some major bumps into the real-estate market's "soft landing." How low must prices go?
From the perspective of boosting the economy and preventing a crisis of confidence from causing the collapse of the real-estate market, many the real-estate stimulus package was necessary. But there is another view. Snails Without Shells (an advocacy group for people unable to afford their own homes) protests that the government's intervention in the real-estate market has destroyed the hopes of Taiwan's less wealthy families for cheaper housing. The public debate has also mentioned the ads jointly placed in newspapers in the early 80s by Cathay Construction and Pacific Construction offering 20% cuts in the prices of their homes. These price cuts sparked interest in buying homes and revived a lifeless property market. People wonder why the construction industry has not offered large-scale discounts on the homes it has on hand, thus bailing itself out. Why is the government using taxpayers' dollars to support high prices?
In response to these questions, Chiang Hui-hsiung, executive director of the Federation of Real Estate Investment Associations of the ROC, cites the example of Tanshui. "The average price of a new apartment in Tanshui has fallen from a pre-construction price of NT$220,000 per ping [about 3.3 square meters] four years ago to about NT$130,000 now, and you still can't sell at that price! Don't talk about 20% cuts in prices. Prices have been cut 20%, and 20% more, and it's still no use."
Chang Tiao, head of the Kaohsiung Association of Real Estate Investors, says that you can buy an apartment in the high-rises of downtown Kaohsiung at a price of NT$100,000 per ping and get back change. In more rural locations such as Yunlin, Chiayi and Pingtung, new apartments are selling for NT$60,000-70,000 per ping, yet there are still empty apartments everywhere.
There used to be a saying in real-estate circles which ran, "There is no such thing as an unsellable apartment, only an unsellable price." But with supply so greatly exceeding demand and buyers all waiting for the market to collapse, "Who can tell us at what price we can sell properties?" asks Chang.Taipei-playground for the rich
Objectively speaking, real-estate prices in many cities and counties have already fallen to what are reasonable levels based on standard family incomes. (Generally speaking, most families are expected to be able to afford a house that costs about 3.5 to 4 times their annual after-tax income.) For example, in 1997, the average annual after-tax income of a family in Tainan was about NT$820,000. Based on this figure, a reasonable average purchase price for a standard apartment of about 30 pings would be about NT$3 million. And, in fact, in high-rise apartment buildings on Kungyuan Road, not far from the train station, apartments are available at a price of NT$80,000-90,000 per ping. But this is not the case in Taipei. In Taipei, the average annual after-tax income per family is around NT$1.2 million, thus a reasonable average price for a 30-ping apartment would be NT$4.5 million, more or less. But you could wear out a pair of iron-soled shoes looking for a 30-ping apartment for that price in Taipei City.
Chuang Meng-han, an associate professor in the industrial economics department of Tamkang University who is very familiar with the real-estate market, says that the situation is much like that in Tokyo: "All of Taiwan's wealthy want to have a home in Taipei." This is one of the reasons Taipei's apartment prices are so high. Snails Without Shells have been protesting the government's real-estate market stimulus plan everywhere, stating that without such support prices in Taipei could fall to NT$100,000 per ping. But, "If the average price of a Taipei apartment fell to NT$100,000 per ping, I'm afraid Taiwan's entire economy would go belly up," says Chuang, shaking his head.
Wang Ying-chieh, executive director of the Chinese Association of Real Estate Brokers and member of the National Assembly, states that 84% of people in Taiwan own their own homes. Many have scrimped and saved their entire lives to purchase an apartment, and more than half of their total assets are tied up in this one object. If real-estate prices collapsed, "everyone would lose."
Of the government's plan to boost the property market, Yin Nai-ping says if the government is concerned about criticism that it is trading benefits with the construction industry, it could wait until the real-estate market and developers begin to go under before acting. Then it could put together an organization to package up repossessed properties for sale to help the banks clear bad debts off their books. But by that time, "Taiwan's credit rating and its international image would have been wrecked. The cost of fixing the problem would be much higher." From the perspective of preserving financial stability and avoiding a crisis of confidence, the government had to act.Stepping in in six months?
But Yin emphasizes that the local property market has cycled between boom and bust for the last 30 years. Clearly the present system has some serious flaws, and this NT$150 billion is just an emergency measure which will give the market six months of breathing room.
"The long-buried problems of the construction industry will not be resolved by short-term rescue packages," says Yin. He feels that in order to avoid making the long-term situation worse, the government must implement measures which address these deeper problems within the next six months. If it does not, the construction industry's problems will recur. Yin wonders how many times the government can afford to throw NT$150 billion at the problem.
Tsai Wei-ming, president of the Wei-Ming Real Estate Investment Weekly, has estimated that the benefits of this NT$150 billion will play themselves out in three to six months, and that the money will take about 70,000 apartments off the market. But when one considers the number of excess apartments, these 70,000 are a mere drop in the bucket.
Tsai ridicules the demand aroused by this policy as "the last kick of a dying man." He predicts, "If the government doesn't come up with a stronger incentive to make people buy, once this program runs out a new nightmare begins."
There's no question that these government-sponsored low-interest mortgages will stimulate buying, especially by those who already had the need or desire to make a purchase. Offered a low-interest mortgage that will save you NT$600,000-700,000 over the life of a 20-year mortgage, who wouldn't be interested? But if consumers push up their purchase timetable to take advantage of the low-interest loans, what happens next year? Would it be like Chang Tiao says, with construction firms taking advantage of this opportunity to unload the apartments they have on hand and then "running for their lives," some moving into different industries and others carrying out mergers? At this point no one can say.Reolving the problems
Looking at the troubles confronting the construction industry, Lai Cheng-i says feelingly that over the years the government has always focused its industrial policy on manufacturing industries. Except for its occasional efforts to either restrain or bail out developers, the government has largely let the industry go its own way, allowing firms to make it or fail on their own.
Even now, there is no government agency exclusively responsible for monitoring the construction industry, an industry closely linked to social stability. Moreover, even housing policy and planning for the use of national lands are not coordinated. The only issues are: Which cities and counties are going to implement land-use ratios? When? Firms spend all their time guessing. When Taipei County announced that it was putting land-use ratios into effect a year and a half ago, builders rushed to get projects going before they were implemented. The 4,000 new building licenses that were approved translated into 200,000 new apartments. Over the last two years, there have also been a number of instances of buildings built on slopelands falling down, leading the government to ban the construction of buildings on slopes of over 30 degrees. While this may have alleviated the slopeland problem, it has left firms which bought large tracts of slopeland for development in the lurch.
In addition, there is a great deal of legislation relating to the real-estate market-everything from regulations on the construction of residential buildings to securitizing mortgages-which has not yet passed the Legislative Yuan and has therefore not been implemented in spite of several years of discussion. Moreover, in spite of the obvious oversupply problem which exists on the real-estate market, the government has been moving forward with its renovation of housing for military dependents and opening up more agricultural land for development. This makes developers anxious.
Chang Chin-oh understands that firms have their troubles, and he knows that government policy is not perfect. But he nonetheless feels that when you're in business you should exercise some business sense; you can't blame all your problems on someone else. For instance, in order to get around land-use ratios, firms have been rushing to get projects completed before these ratios take effect. "What are these firms thinking? The sides of mountains and the banks of rivers are packed with 1,000-unit apartment buildings. Excuse me, but how many people are going to want to live in that kind of place? And are firms thinking that they can go against the economic tide, creating demand out of nothing?"Come clean and everyone wins
Chuang Meng-han believes that the solution is going to hurt, and the industry had better start thinking about how to deal with that hurt. The first thing to be done is to get market mechanisms fully instituted in the real-estate market as quickly as possible. Information on planned projects, sales rates, unsold units and transaction prices should be made more readily available. Consumers would thus have more confidence when buying a home and would be less likely to regret their purchase. Still more important is to create a "warning system" for the industry to reduce the number of projects begun with little deliberation, and thereby conserving resources.
Chang Chin-oh says that while long-term planning for the real-estate market is being carried out, the importance of social equity must be remembered. "The real-estate market can be divided into the rental, previously-owned-home and new-home segments. The government's stimulus package is aimed primarily at absorbing some of the excess of new homes, and it provides tax breaks to home owners. The weakest group, the renters, get nothing."
Chang says that the government should quickly put in place a system which provides more help the lower your income is. On the one hand, this will help alleviate some of the difficulties faced by Taiwan's "snails without shells," while also ameliorating the negative effects of a construction industry used to ignoring the little guy and raking in profits without actually doing very much.
The government has already administered strong medicine to the property market, but whether this will bring about a recovery remains unclear. Looking back at Taiwan's last property boom in 1987, we note that it occurred at a time when the NT dollar was appreciating and there was a lot of "hot money" flowing around. The trade surplus was at unprecedented levels and there were not many investment alternatives available. In this situation, property prices boomed under pressure from local and foreign capital. But those days are past, and the dream of overnight riches from real estate should have passed with them. Taiwanese society will only regain its stability when it washes the property bubble completely out of its system.
"I only hope that these jolts to the market and the passing of the bubble market will allow Taiwan's economy to put down more stable roots, and that it will lead to a better living environment for everyone. If that happens, then these recent difficulties will have been worthwhile." Chang Chin-oh's wish is everyone's wish, isn't it?
@List.jpg?w=522&h=410&mode=crop&format=webp&quality=80)