Taiwan isn´t what it used to be. Years ago, the phrase “Made in Taiwan” graced everything from shoes to cheap clothes, mid-range electronics to toys. Manufacturing worked well for the island, and Taiwanese consumers had just over US$1,300 worth of purchasing power in the early 1960s. Fast forward to 2014. “Made in Taiwan” is still around, but it´s stamped on high-end electronics, computer chips, semiconductors and optical electronics. And that purchasing power? Roughly US$37,000.
Taiwan is a small island with a low GDP (US$975 billion), particularly when compared to its closest neighbours China, the Philippines, South Korea and even emerging Vietnam. But starting in the mid-20th century the island that was Formosa has carved out a distinct identity for itself on its way to becoming a major Asian economic power. And now its property sectors are reflecting that status.
The massive growth in Taiwan has led to a considerable shift in its real estate landscape in the last few years. With home grown, and growing, multinationals like HTC, Acer, TSMC and the controversy-plagued Foxconn as well as an established textiles industry focusing on new technologies looking at new or more office space, the early steps in increased economic cooperation with Mainland China is making its mark. Taipei is seeing a demand for upmarket expatriate executive housing as well as luxury homes for increasingly affluent Taiwanese.
As of the second quarter of 2014, Taipei´s central business district office market showed rising uptake and rental rates as well as a stagnant supply. With an IT-heavy economy growing at nearly 4 percent (a six quarter high), it´s no surprise that over 40 percent of investor activity is in the office and industrial office sectors, with foreign investors account for 36 percent of investment values — NT$7 billion (HK$1.8 billion), almost totally concentrated in Taipei.
According to Colliers International´s second quarter Taipei market report, “MNCs and domestic companies were active in expansion or relocation activity and net take-up in 1H 2014 amounted to [782,000 square feet], somewhat higher than the [709,000 square feet] of 2013. It is expected that actual absorption in 2014 will meet or exceed the originally predicted [1.14 million square feet]. The office market vacancy rate will rise a little owing to new supply being higher than net take-up.” Where there is a strong office sector, residential development tends
Complex Residential Sector
There´s some grumbling though. Along with rising salaries and gross domestic product come rising residential costs. There has been speculation that the 2010 China-Taiwan Economic Cooperation Framework Agreement (ECFA) has been the cause of Taipei´s soaring home prices. However, Chinese investors tend to the commercial sector, assuming they can get past existing restrictions and their own (admittedly loosened) overseas investment regulations. Like Hong Kong, locals are driving prices up, chiefly local entrepreneurs that have made fortunes in the Mainland. According to research by Bank of America Merrill Lynch, home prices in Taiwan jumped nearly 92 percent between 2008 and 2014. Though there are cooling measures in place (like a 15 percent luxury tax on property sold within one year of purchase) some of those policies brought the market to a crashing halt this past summer. Transactions fell over 21 percent in April from the previous year and average prices in Taipei are currently sitting at approximately NT$690,000 (HK$175,000) per ping — a traditional Taiwanese unit equal to about 35 square feet.
Taiwan´s luxury market is concentrated in Taipei where supply is as limited as land, and there´s a good deal of investment purchasing going on among high net worth individuals. And indeed Chinese investors are at the fore. “Property demand from Chinese nationals, businesses and institutional investors are on the rise as well. Their robust property demand is attributable to surging investments made by Chinese firms in Taiwan as economic ties between Taiwan and China has strengthened significantly over the past few years,” explains Kai Chen, research director, Taiwan Sotheby´s International Realty. Chen expects to see luxury residential purchases rise in the coming years as China´s investment (nearly NT$11 billion in 2013) does too.
But despite soaring prices, might Taiwan, and Taipei, be a smart investment? “Compared with other international markets such as Hong Kong and London, Taiwan´s properties definitely appear to be a bargain,” agrees Chen. Though premium properties can run NT$100 million (HK$25 million) there are still plenty of quality, spacious condominiums to be had for half that. He also recognises the country´s decade long real estate rally has put a strain on mass market, local buyers and the resulting cooling measures have led to the luxury sector plateauing.
Chen see Taiwan as a long-term, appreciation-based market, and even though residential yields are low (roughly 2 percent) office returns are strong and, “Many buyers have acquired luxury properties in Taiwan for the sake of asset allocation concerns,” states Chen. The combination of local owners willing to hold assets and limited supply has made the luxury sector on the island one of the most stable in Asia-Pacific. “In Hong Kong and Singapore, hawkish policy measures have been imposed on foreign buyers, causing the recent luxury home price decline trends seen recently in those markets,” he says.
No market is perfect and Taiwan faces its share of challenges in the future: next month´s local elections, where housing policy is a platform point, and the increasing integration with Mainland China are just two. But Taiwan, ultimately, is the little island that could. Chen: “Although we do not expect home prices to rise sharply in the near future, we believe Taiwan´s property market still provides strong prospects for long-term investors.”