Written by Wei-Che Fu and Yu-Chi Tseng.
While the production of semiconductors and microchips make Taiwan relevant in terms of global economic and political geolocation, the challenges of its local industry development and social inequality were still ahead during the Sino-American conflicts. The mass capital escape from China is generally regarded as another chance for attracting investment. Taiwan experienced a new wave of housing inflation since the global financial crisis in 2008. Mainstream perspectives emphasise the historically low financial interest rate and the pouring of money from Taishang in China, but structural issues were unsolved in the past few decades. The oversupply of money in recent years, thus, catalysed the pandora’s box of housing governance in Taiwan.
The Housing and Real Estate Development in the 1990s
According to the housing affordability index suggested by Demographia, while the average housing price income ratio of Taiwan is affordable, its capital, Taipei, was ranked the world’s most expensive cities in the past few years. Furthermore, the estimation of the ratio from official statistic in Taiwan is still above 15 in 2020. The issue of low wage with high housing prices has haunted almost recent every government in Taiwan. While the government since 2016 has tried to catch up with the construction of social housing to the international level, the total number of public housing supply in the housing market is relatively negligible (about 0.19%, 2021 number). As a result, people have a strong preference for having their own houses in Taiwan. Moreover, housing policies were designed to meet the anticipation, encouraging privately-owned houses through government subsidies.
Scholars have pointed out the increasing dependency on the housing financial instrument. These are supported by policies that change the means for people to purchase a house in the past decades. Thus, the total financial debt for construction and housing mortgages accounts for over half of Taiwan’s total GDP, according to the record from its Central Bank. Beyond the understanding from local slang of “possessing a territory will give him its wealth有土斯有財”, there was otherwise a dramatic institutional transition for the housing market since the late 1990s.
When people have idle money, they choose housing or real estate assets as investments and savings. The legacy of land and real estate governance under the authoritarian regime left the cost of owning real estate relatively low in Taiwan until recently. For instance, housing and land ‘prices’ were decided by local governments rather than left solely to the market. Moreover, land property and housing were taxed separately instead of as a whole. It was not until the inflated housing price caused public pressure after the 2010s that the governments began to fix loopholes in the institution. Thus, a relatively comprehensive regulative institution and transparent housing information were gradually established in the past few years. However, the overlooked institutional leaks provided people who had the capabilities to speculate through housing exchange.
Where Did the Money Come from in the past Decades?
Before the global financial crisis in 2008, the late 1980s saw housing prices skyrocket due to the oversupply of money at the domestic level. However, after those years, it was contradictory that the continuing outflow of capital to China somewhat not retarded the local economic development of real estates. As researchers have pointed out that the neo-liberal policies, especially on tax cuts for corporations and real estate property, induced capital pouring into fixed assets, few did notice how the Taishang think within business rhythm under the changes of the cross-Strait investment environment.
One of our authors has conducted several interviews with Taishang, who invested in Southern China. A chairman of the plastics and rubber industry confessed that they (Taishang and their businesses) had faced significant challenges since 2008. The crisis of the US subprime mortgage and China’s new arrangement of institutional transformations, including The Law of the PRC on Enterprise Income Tax (2008), The Law of the PRC on Employment Contracts (2008), and Social Insurance Law (2010), have forced them to make considerable changes on factory management. Moreover, enterprise succession remains an issue. The chairman wishes to hand over the business to his son and enjoy his golden years in Taiwan with his grandsons after 40-years of hard work. Because of his son’s reluctance, the chairman has engaged in the asset and career transfer plans on the one hand and invested in real estate in Southern Taiwan on the other hand for his descendants.
Another chairman of the plastic raw materials industry mentioned his rationale on finance options and real estate investment. Taiwan has remained a highly controlled and regulated economy entity, and financial industry players provide Taiwanese businessmen with fewer financial options. When raw material is produced with large volume and long transportation, entrepreneurs usually purchase finance products to avoid risks. When he has raw material production with large volume and extensive transportation, purchasing finance products to avoid risks is necessary; however, he is usually unable to have a viable finance product. Under this circumstance, real estate investment in Taiwan is the best choice to place surplus capitals because land and housing property are the two most straightforward ways to obtain bank guarantees. Furthermore, he said, Taishang’s glorious days are over: manufacturing now confronts the international financial crisis and China’s changing policies. Therefore, real estate development is a more value-preserving business compared to his industry.
In addition to the cases mentioned above, the data reveals that Taishang put their money back to Taiwan. As the figures show, the total investment number from Taiwan to China has a downturn since it met its peak in 2010, while the backward capital from China both from corporates and the total figure has grown continuously. Comparing to a more regulated investment environment in China, the government in Taiwan changed its policies to heartily welcome capital from China, no matter where its destinations were. These Taiwanese businessmen who left for China in the mid-1980s grasped the opportunities of the economic reform and took advantage of cheap labour and dividend policies (such as cheap land user fees and tax incentives), earning themselves high incomes. They are looking for a way out for their surplus capitals, and the real estate in Taiwan is a proper invested landing place.
Figure. Backward Capital from China in Corporations and Banks, and Ratio of Investment to China
|Year||Backward revenue from listed corporations||Backward capital from China through banks||Ratio of Investment to China|
Taiwan’s Real Estate－the Parking Destination of Surplus Capital from Taishang?
Although there is no way to blame the housing inflation exclusively on the retroactive capital from Taishang , from a perspective of comparative institutional development in the past few years, we can see institutional incentives in Taiwan that allows surplus capital through the accumulation of real estates. The skyrocketing housing prices in Taiwan, the supportive private property policies, the highest vacancy rates, and almost the lowest householding tax rates (＜0.1%) in the world mirror that people with idle funds will undoubtedly “rationally” plunge into the housing market. As interviews have shown, Taiwan’s real estate market relatively provided a ‘safe and profiting’ parking destination for their surplus money. Thus, we may lean toward the outflow of money from China in recent years. This would provide opportunities to upgrade local industry, but the difficulty of how these institutions could induce money to benefit society overall rather than only a few people still challenge the government’s credibility in Taiwan.
Wei-Che Fu is a PhD. candidate from National Tsing Hua University, Taiwan. His research focuses on the land expropriation and housing issues in contemporary Taiwan. He will be a research visitor at ERCCT, University of Tübingen during the mid-2020-2021.
Yu-Chi Tseng is Project Assistant Professor of the Center for General Education at Chang Gung University of Science and Technology (CGUST), Taiwan. She is currently conducting a comparative project on the mechanisms of skyrocketing housing prices in Taipei and Shenzhen.
This article was published as part of a special issue on Housing in Taiwan. You can find all articles in the special issue here.