(Bloomberg Businessweek) -- Over two days in June, dozens of Chinese warplanes flew close to Taiwan, part of an increasingly routine effort to amp up pressure on an “instigator of war,” as Beijing leadership labels the island’s new president. Even as the jets were buzzing the skies offshore, in the leafy, lakeside Taipei district of Neihu, 30 prospective buyers were queuing up to view a NT$32 million ($1 million) house.
They’d been there for hours, arriving early in the morning for a chance to view the property. As it turned out, the first buyer went into contract 10 minutes after going through the door. “In 15 years doing this job, I’ve never seen demand like this,” says Peng Chang-sheng of Sinyi Realty, the listing agent for the home.
While the risk of an imminent Chinese invasion remains very low, Taiwan is becoming more of a geopolitical flashpoint. A new TV show imagines a Chinese invasion. US presidential candidate Donald Trump wants to make the island pay for protection. After the election this year of President Lai Ching-te, China threatened supporters of independence with the death penalty.
Yet Taiwan is in the midst of a real estate boom, with housing prices hitting an all-time high in March after recording their strongest quarterly growth in a decade. Turbocharged by low financing costs and incentives for purchasers, the market is in a fear-of-missing-out frenzy. “Of course I still worry about wars, but my priority is giving my kids better opportunities,” says Vivian Shi, a teacher who five years ago looked at various options but shied away from a purchase because of concerns about the future. In March she bought a NT$24 million apartment near Taipei. “If I don’t buy now,” she says, “I don’t think I’ll get another chance.”
The median home price in Taipei is 16.1 times median household income, according to Taiwan’s interior ministry. That compares with 3.8 times in Singapore and 7.1 times in New York, though it’s still lower than in Hong Kong, at 16.7 times, according to researchers at Chapman University in California studying data from late last year. Prices in Taiwan are being fueled by mortgage costs that Goldman Sachs Group Inc. says have been negative in inflation-adjusted terms for much of the past three years: In May, rates for new loans stood as low as 2.19%, according to the central bank, versus 2.9% in Singapore and 4.1% in Hong Kong.
The central bank on Aug. 21 said it is asking lenders to rein in loan volumes to help cool the market. And the finance ministry, facing criticism that people who don’t own a home were struggling to buy, a year ago eased conditions on loans from government-backed lenders—extending the term for first-time buyers to 40 years from 30 years, letting them pay no principal for the first five years and raising the limit for such loans by 25%, to NT$10 million. In May, mortgage approvals hit a record high of NT$116 billion, with 41% of loans from the biggest government-backed lenders included in the first-time-buyer program. Home prices increased 3.6% in the second quarter, compared with a quarterly average of 1.9% last year, according to Sinyi Realty.
Global enthusiasm for artificial intelligence and the resulting surge in demand for chips, Taiwan’s biggest export, has driven a 24% rise in the island’s stock market this year. And that’s driven up housing prices: The biggest increases have been in Hsinchu, where Taiwan Semiconductor Manufacturing Corp. is headquartered and operates multiple foundries. “From a rational, political risk standpoint, housing costs shouldn’t be going up,” says Vincent Chen, who sold his home and moved into a rental in 2020, then last year bought a three-bedroom flat in Taipei. “We’re driven to buy, fearing prices will continue to rise uncontrollably.”
Three years ago, in an attempt to rein in speculation, the government imposed steep taxes on sales of homes after less than five years of ownership. The result, though, was to further amp up the frenzy, says Chen Chan-hao, executive manager of brokerage Chinatrust Real Estate Co. “The policy was supposed to cool down the housing market, but its actual effect has been to cut supply and drive up prices,” Chen says. Property website Leju says inventories of preowned homes in Taiwan have fallen by almost a third in the past year.
That hasn’t done much to damp enthusiasm among buyers, regardless of the political outlook, says Justine Chen, deputy manager of real estate firm Yung Ching Rehouse Co. Most people on the island simply can’t worry about growing tensions with China, focusing instead on getting by day to day. “Taiwan isn’t like Europe, where you can just drive away if a war breaks out,” she says. “While we acknowledge there can be risks, this is where we live.”
--With assistance from Cindy Wang.
©2024 Bloomberg L.P.
