Is the little big city poised for an investment renaissance?
Taipei is like the youngest sibling no one pays attention to. That little brother or sister may have their unique strengths, but he or she is often overshadowed by the more glamorous older family member. Among the brothers and sisters comprised of urban behemoths like Tokyo, Beijing, Bangkok, Hong Kong and Singapore, Taipei just putts along doing its thing in relative anonymity — despite what reality may be.
The metropolitan area of nearly seven million (2.5 million in the city proper) sits in a valley on Taiwan’s northern tip and prides itself on its cultural (it is the centre of the country’s filmmaking industry) and historical significance (the National Palace Museum is home to one of the largest collection of Chinese artefacts in the world). Taipei is one of Asia’s most openly hospitable cities, and its dining, shopping and surrounding natural attractions are among the region’s most spectacular. And Taiwan is tiny, meaning the southern districts of the island are never too far away.
Not too long ago nearly all electronic products were emblazoned with “Made in Taiwan.” Manufacturing now makes up a fraction of Taiwan’s industrial output, with high tech communications and biotech taking the lead. So with all this going for it, where is Taipei’s residential investment market? “Due to the relatively small scale of the expatriate housing market [compared] to Singapore and Hong Kong, financial institutions are not likely to invest in the residential market, implying the investment yield is below 2 percent,” says Howie Wang, head of research for Jones Lang LaSalle in Taiwan. On top of that, Taiwan’s domestic businesses are not the super-conglomerates so common in other parts of Asia.
The luxury market in Taipei is still in its infancy, something in the neighbourhood of 500 new units per year — a fraction of Hong Kong’s — and the luxury sector is buoyed, at present, by local high net worth individuals, like Foxconn’s CEO. And like Hong Kong, Singapore and Mainland China, property market tightening policies are coming into effect, though Wang points out, “The government’s tightening measures should [have] larger impact on mass residential market than luxury.”
A key to Taipei’s investment market can be found in the wobbly state of the American and European economies. Manufacturing may be going the way of the dinosaur, but Taiwan remains an export economy. Wang admits economic uncertainties as well as the debt crisis are influencing the multinationals that are in Taiwan. “The worsening sovereign debt crisis in the Eurozone and deteriorating economic prospects in the United States made some MNCs in Taiwan and local enterprises unsure about the outlook for the future, causing them to postpone expansion plans,” Wang explains, adding that it will be the first quarter of 2012 before major multinationals and local enterprises alike make any expansion moves. China’s lower labour costs are also wooing big corporations and their staff away from Taiwan, forcing the country to adjust its course. “The Taiwan government is trying to take the lead in investing and promoting the development of six key emerging industries, namely the medical and health care industries, biotech, high-end agriculture, tourism, creative industries and green energy. Today there are less factories, but more R&D centres in Taiwan.”
Currently, the market is being driven in part by tourism from China and Wang predicts the same kind of trickle down across all sectors that occurred in Hong Kong to eventually take hold in Taipei, with the effects of mass tourism on retail, office and finally residential prices being mirrored there. “Taiwan’s real estate market should witness the same experience that is happening in Hong Kong.” The results of the June 2011 regulation allowing 500 individual tourists per day combined with tariff-lowering Economic Cooperation Framework Agreement encouraging cross-strait cooperation are already being felt. “After one year to August 2011, the number of foreign companies escalated by 167 to 3,536 and number of foreign offices increased by 252 to 3,520, with mounting investment reaching NTD 11 billion,” Wang notes.
Indicators could be worse, and Taiwan has repeatedly come out of recessions reasonably unscathed. So what kind of challenges is the city looking at down the road? That export focus is once again at the heart of the issue. Demand for tech toys is up in key markets (China and the US) but “The US economy is unlikely to pick up soon while China’s government is expected to slow down the over-heating economy. These should be the short term challenges.” And no discussion of Taiwan’s future could exclude its own 2012 elections. “No matter which party wins the election, the current relaxations on cross- Strait economic cooperation should continue. The further opening to China should be always key political issue for Taiwan.”