Stagnant Conditions in the Housing Market

The Tao Zhu Yin Garden, designed by French architect Vincent Callebaut and currently under construction in Taipei's Xinyi district, has been liked to a double helix. (Photo: Bes Engineering)
The Tao Zhu Yin Garden, designed by French architect Vincent Callebaut and currently under construction in Taipei's Xinyi district, has been liked to a double helix. (Photo: Bes Engineering)

Developers recently have deserted the luxury segment for smaller units with lower selling prices

Following a decade or more of booming business, housing construction in Taiwan has been stuck in the throes of a bearish market. Developers have been slashing prices to stimulate demand. As investment-oriented buyers have largely retreated from the market due to the sluggish economy and government efforts to reduce speculation, the emphasis now is squarely on own-use buyers.

In line with current preferences, whether by first-time owners or those looking for replacement housing, the industry is now focusing on providing smaller and less expensive units – a marked shift from the previous concentration on luxury housing.

A typical case is the Jiangcui One apartment complex in a rezoned section of the newly developed Jiangzicui riverbank area in New Taipei City’s Banciao district. Because of the convenient MRT access, Jaingzicui has become a hot area for housing development projects. At Jiangcui One, whose housing units range in size from 15 to 35 ping (one ping equals 36 square feet), the asking prices are a moderate NT$450,000-$480,000 (US$14,516-$15,484 per ping, 20-30% lower than going rates for new housing units in the neighborhood and even lower than prices for resale houses.
As a result, the project was almost sold out within two months following its rollout in July, an exceptional performance given the overall sluggishness of the market. The total value of the project is estimated at NT$7 billion.

In early 2016, the Fine Arts Chunlin project made a stir in the slack housing market in Kaohsiung, as prospective buyers were attracted by the asking prices of NT$230,000-$250,000 per ping, about 20% below the going rate in the neighborhood, an upscale area near the Kaohsiung Museum of Fine Arts. Space in the 29-story residential building, whose units range in size from 55 to 71 pings, sold out quickly.

Thanks to a low-price strategy, some housing projects in peripheral areas in Kaohsiung have also met a warm market reception. An example is “Paris Travel” in the Ciaotou new-town section of the city, which was sold out rapidly, helped by pricing of around NT$120,000 per ping.

These exceptional successes, however, run counter to an overall picture of market stagnancy. The level of housing transactions has plunged drastically since the 12-year bullish market ended in 2014. In the first half of this year, the number of housing transactions in Taiwan came to only 108,000, and is expected to hit 240,000 for the whole of 2016, the lowest level since 1991. That figure would be only half the peak level of 509,000 in 1996, and compares with the average of 335,000 for the past five years.

In the six special municipalities – Taipei, New Taipei, Taoyuan, Taichung, Tainan, and Kaohsiung – transactions in the first half of this year amounted to 81,700 units, an 18-year low. The steepest decline occurred in Taipei, where the 9,198 transactions represented a 29.4% drop year-on-year. Next was Taichung, with 14,989 transactions for a 26.4% decline, followed by Tainan, a decrease of 19.8% of to 7,407, and Kaohsiung’s 14% decline to 14,199. Taoyuan bucked the trend, increasing by 3.62% to 18,161 transactions.

In Taipei, the area with the most activity was the Zhongshan district, with 1,428 transactions at NT$724,000 per ping on average. In both Neihu and Beitou there were 1,033 transactions, with prices in the NT$450,000-$500,000 per ping range. In New Taipei, Tamsui topped the list with 2,217 transactions, averaging only NT$200,000 per ping (thanks to low-priced buildings in Tanhai New Town), followed by Zhonghe with 1,757 transactions and Xindian with 1,628, with prices in both areas averaging NT$400,000 per ping.

The Tao Zhu Yin Garden, designed by French architect Vincent Callebaut and currently under construction in Taipei's Xinyi district, has been liked to a double helix. (Photo: Bes Engineering)
The Tao Zhu Yin Garden, designed by French architect Vincent Callebaut and currently under construction in Taipei’s Xinyi district, has been liked to a double helix. (Photo: Bes Engineering)

Less construction

Faced with a gloomy business outlook, developers have largely scaled down their operations. In the first five months of 2016, the number of construction permits issued in Taiwan came to only 30,800 units, down 27.7% year-on-year, a far cry from the 133,000 for the whole of 2013, 124,000 in 2014, and 107,000 in 2015, according to Ministry of the Interior data. Taipei appeared to be hit the hardest, with the number of construction permits plummeting 53.7% to 1,433 in the first half, according to the Taipei City Construction Management Office. Consequently, the number of housing brokerage outlets in Taiwan is expected to drop by 2,000 this year to around 3,500, half the peak level of 7,000.

Jut Land Development pays a great deal of attention to aesthetics and use of public space in its projects. (Photo: Jut Land)
Jut Land Development pays a great deal of attention to aesthetics and use of public space in its projects. (Photo: Jut Land)

Total housing starts in Taiwan in the first five months dropped 13% year-on-year to 30,200 units, compared with 105,000 for the full year in 2014 and 84,000 for 2015.

Amid the sluggish market, average housing prices had dropped for seven consecutive quarters from the peak level in the first half of 2014, a total decline of 8%, before bouncing back 2% in the second quarter of this year to reach NT$546,000 per ping in Taipei and NT$358,000 per ping in New Taipei, according to the housing price index of Sinyi Realty, a leading housing brokerage. The price upturn was triggered by a loosening of housing credit by the Central Bank.

Still, urban housing prices remain at a sky-high level, far beyond the reach of most salaried people. The prices began to rise after the housing market entered a bullish stage in 2002 and picked up speed in 2009 when the government slashed the inheritance and gift taxes to 10%. The average housing price in Taipei is now 15 times the average annual income.

Meanwhile, investment-oriented buyers, the main drivers in the housing market in past years, have all but disappeared given the weak market activity and the government’s efforts to increase the tax burden for holders of multiple properties. Those measures have included the levy of a tax on luxury housing in 2011, inauguration of a consolidated housing-land tax on property sales from January 1 this year, and an increase in property-value assessments by municipal governments, including a surcharge for certain locations.

The high taxes have even dampened sales of new houses for the buyers’ own use. “Due to the spike in the housing tax and land-price tax, many people told me that they can’t afford to live in a new house, even if they can afford to buy it,” says Kuo Shu-chen, chairperson of Rich Development.

The luxury-housing craze has all but vanished in Taipei. In the first half of this year, only 57 transactions occurred for houses priced over NT$70 million, compared with 554 for 2015 as a whole. The figure was a mere 12 for the Zhongshan district, where 231 transactions took place last year, and it was in single digits in the DaAn and Xinyi districts.

Of the few luxury-housing projects currently underway in Taipei, the most noteworthy is Tao Zhu Yin Garden, designed by French architect Vincent Callebaut, in the Xinyi district near Taipei 101. On the site of the former boutique hotel Agora Garden, Tao Zhu Yin Garden is being promoted as Taiwan’s first “forest building.” It will be surrounded by 22,900 shrubs and 356 trees, capable of absorbing 130 tons of CO2 a year. The 21-story building, scheduled for completion in the second half of 2017, will have a twin twisted structure, like a DNA helix, and will be furnished with auto elevators enabling residents to park their cars upstairs, and a helicopter landing pad.

Each 288-ping housing unit will include a 50-ping garden and 14-ping open balcony. CNN has called it one of the nine new buildings set to define cities in 2016. Shen Hui-ting, special assistant to the chairman at the BES Engineering Corp., developer of the project, describes Tao Zhu Yin Garden as an “artistic building, rather than a luxury building.”

Kaohsiung and Taichung

As in other municipalities, Kaohsiung’s luxury-housing market for units priced over NT$40 million, also contracted drastically in the first half of this year, but a number of major projects are ready to be launched in the second half. One such case is Kuo Cheng Development & Construction’s China Resurrection project, located in the Asia’s New Bay Area, which will be served by a new light-rail transport system. It is a 41-story building with each unit exceeding 100 pings in space, and the asking price of NT$1.2 million per ping is a record high for the city. Construction of the project, which is valued at NT$15 billion in value, is due to start in October.

In Taichung, the luxury-housing market has remained relatively vibrant with the help of some continued rezoning. Following its rollout in March, the “1617 Special Zone” project was 60% booked in a mere three months, a rare feat given current overall market conditions. The project is a 30-story building with each unit sized at 85-98 pings. Asking prices start from NT$600,000 per ping. It features a 1,200-ping garden, faces Wenxin Forest Park, and is near the Taichung MRT green line, now under construction. Valued at NT$7 billion, it is designed by the renowned international architectural team of Wilson Associates.

Attracted by the potential, some northern Taiwan-based developers have forayed into Taichung’s luxury-housing market. For example, Continental Development Corp. has a Lige project designed by Italian architects Antonio Citterio and Patricia Viel. Units in the 33-story building are 60-125 pings in area, with asking prices starting from NT$700,000 per ping.

Nearby, Fubon Land plans to launch Fubon Haoting, in the second half of the year. A 41-story building with each unit sized at 160-180 pings, it is designed by Richard Meier, an American architect and winner of the Pritzker Architecture Prize.

Following a bout of steep decline, the overall housing market has appeared to stabilize. In addition to the 2.02% year-on-year growth in the second quarter recorded by the Sinyi Realty housing price index, the number of transaction in the six major cities rose 2.9% year-on-year to 15,600 in August, the second month this year (the other was May) with year-on-year growth.

Aaron Lee, executive director of Jut Land Development, describes the upturn of market demand as palpable. “For instance, market reception to our new urban renewable project, Pinzhongshan, on XinSheng North Road in Taipei, has been warm since its rollout in mid-year,” he says. The project, consisting of three 19-story buildings, has some 100 housing units, each with an area of 40-60 pings and selling at NT$800,000-$900,000 per ping, about 10-15% below previous price levels.

Besides the attractive prices, Lee attributes the satisfactory sales to a change in strategy to focus on smaller housing units instead of the more than 100-ping apartments of the past. “Sensing that the luxury-housing market had become overheated, we exited that sector some two years ago,” explains Lee. He notes that many “well-to-do people are buying such smaller units for their offspring.”

To appeal to such buyers, Jut Land pays a great deal of attention to community development in its Taipei projects. “In addition to the aesthetic designs for the buildings themselves, we’ve planted many trees, installed public artworks, and reserved ample public space around the buildings,” says Lee.

In Lee’s opinion, the housing market in Taipei has reached a supply-and-demand equilibrium. “On the one hand, the amount of housing inventory is limited,” he says.  “Aside from the limited supply of land in the city, developers have greatly scaled down their projects in the past two years. On the other hand, housing prices have dropped to a level acceptable to more people with the money to buy.”

He rules out the possibility of a housing-price collapse, as people continue to flow into urban areas and developers are willing to hold onto inventory rather than sell at a loss.

 

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