The Taiwan Banker NO.97107.01 / By Tsui Ya-ching
Prices must fall further before the real estate market recoversTaiwan real-estate market outlook: DTZ General Manager Yan Bingli
The Taiwan property market reached an apex in 2013. Three indicators proved this point: soaring prices, enormous supply, and continuation of new construction. Yan points out that when prices and supply are both high that the market has nowhere to go but down. From 2014-15 the luxury residential market declined, while in 2016-17 the industrial property market began a steep downward slide. Prices in freefallIt has been a tough few years for the Taiwan property market, Yang says, adding that prices continued to fall throughout 2017. Given that it was a buyer's market, many people pushed hard for steep discounts. At the end of 2017, Yang forecast that prices would not reach their previous high again. With transaction volume sluggish in 2018, market conditions are far from optimal. Prices will need to fall further before the market recovers, and even when it does recover, it will not reach previous highs. In recent years, Taiwan's real-estate market has experienced a major correction in prices while transaction volume has fallen. If there are fewer than 400,000 transactions, prices will not begin to rise again, Yang says, noting that transaction volume is the key indicator of price. Few transactions indicate that buyers and sellers cannot reach a consensus on selling price, he says. Taking 2016 as one example, land transactions were only valued at NT$80 billion, a steep drop of 40% compared to NT$140 billion a year earlier. Turnover of commercial real estate was just NT$50 billion in 2016, down NT$20 billion from the previous year. Meanwhile, housing transactions hit a record low of just 245,000 units in 2016, down 16.1% over the previous year. In 2017, there was only a slight improvement: through November housing transactions totaled 250,000. It was forecast that transactions for the full year would reach 270,000 units, up just 10% over the previous year. The market may bottom out in 2019 and begin to turn around in 2022 From the above figures, it's clear that the Taiwan property market has yet to bottom out and will likely continue to remain anemic in the next two years. In 2019, prices should bottom out and after several years of price adjustments, the market could recover in 2022. Transaction volume rose slightly last year because there were still a number of new units pre-sold, while buyers snapped up some older properties that had been on the market for a while. Thus, transaction volume reached 300,000 units. However, the fact that transactions grew last year should not be taken as a sign that the market is recovering. For instance, in the future, construction of new homes will be slower than in the years leading up to the prior boom. If 300,000 transactions is a base, and the market can gradually grow over the next few years - 30,000 to 40,000 additional transactions annually - then it will take four years before transaction volume exceeds 400,000 units. At that point, prices should begin to rise again. The Taiwan housing market is currently at a standstill. Sellers believe their properties are worth the same amount as during the market's zenith, and they aren't in a hurry to sell if they can't get their asking price. Meanwhile, buyers feel that there's no pressure to buy now - because the market is bound to fall further, and prices in their view are extremely inflated. To boost transaction volume, developers should launch new pre-sell properties at lower prices. When the newest properties start at lower prices, this will have a knock-on effect on the rest of the market, and the prices of other properties will also fall. Once prices are at a reasonable level, transaction volume will start to pick up. For instance, in the normal market, if a pre-sell home costs NT$500,000 per ping, a new home sells for just NT$400,000 per ping. Older properties thus sell for NT$300,000 per ping. Yet if the pre-sell properties are sold for less - such as NT$400,000 per ping - the rest of the market will follow suit and prices will fall, thus stimulating transaction volume. Gradually falling prices will boost transaction volume Since the Taiwan property market peaked in 2013, prices of residential homes in the most prime areas of Taipei City, such as the Xinyi, Songshan, Daan and Zhongshan districts, have fallen 20%. When prices fall 30%, transaction volume will start to pick up. As for residential homes in the outlying districts, prices have already fallen more than 30%, but they must fall an additional 10% for transaction volume to pick up. Meanwhile, in the commercial property market, transaction volume has been quite anemic, especially given rising tax rates. Higher taxes have an adverse affect on the return on investment of these properties. According to data compiled by DTZ, in the first three quarters of 2017, transaction volume in the commercial real estate market reached just NT$41 billion, while in the land market turnover reached NT$81 billion, which is likely a record low. As a result, Taiwanese investors have begun to invest in overseas property in emerging markets, where rates of return are higher.In Yan's view, overseas property is not necessarily a good investment choice for Taiwanese investors. In order to earn a favorable rate of return, they should be familiar with local regulations and tax policies, get a loan with an attractive interest rate, and even set up a company overseas to manage the investment. Otherwise, given fluctuating exchange rates and benchmark interest rates, their investments may offer minimal returns. Outside of emerging markets, Taiwanese like to invest in Japan. The Nomura Research Institute estimates that by 2033, there will be 2,167,000 empty homes in Japan, and that given that country's low birth rate, even new homes must be discounted before they go on sale. Those factors should be taken into consideration when investing in the Japanese property market.According to the 2010 population census, Taiwan had 1,550,000 empty homes, up to 20% of overall housing stock. In some areas, that figure is 30%. In 2016, Taiwan's birth rate of 1.07 was the lowest in the world and comparable to Japan's. In Yan's view, the Taiwan housing market faces a conundrum: Capable people are not investing in housing, while buyers are not especially capable. Further, sellers expect to sell at a high price, and buyers want to pay a low price. Taiwan's low birth rate will be especially felt in parts of New Taipei City and Taoyuan County, such as in Linkou, Qinpu, Sansha, Xinzhuang, Wugu and Danshui. These areas are relatively far from downtown Taipei, which makes their attractiveness lower than more central locations - without taking into account Taiwan's demographic problems. However, more central areas and those outlying areas with good subway access to Taipei's downtown will be affected less. Buyers and sellers need to find a middle ground In Yan's view, buyers and sellers need to find a middle ground, while investors need to have a keen sense of trends in the market and take action. He points out that prices are still falling. If sellers, believing the market has already hit a nadir, refuse to adjust prices downward, they may find that market prices keep falling - and end up wishing they had sold at an earlier time. In this type of real estate market, if you don't sell today, it's even harder to sell tomorrow. It's necessary for the supply side to lower their expectations for profits and lower prices in order to boost the buying power of sellers and ultimately help the market recover.