Taiwan Real Estate – Worth the Investment?

Factors like steep prices and the risk of natural disasters are dissuading some would-be buyers, while others see the strong economy as a reason to invest.  

In a January post, investment consultancy InvestAsian concluded its discussion of the Taiwan real estate market by stating, “You probably shouldn’t buy a house, apartment, mansion, or any other type of property in Taiwan.”  

This conclusion may seem extreme, as both Taiwanese residents and international participants remain actively engaged in Taiwan’s real estate market. The proliferation of new construction along major thoroughfares would seem to indicate strong demand. And as business news provider Entrepreneur has observed, those hoarding fences around construction sites offer the kind of high-visibility advertising exposure that marketers covet. Billboards for two sizeable residential complexes are positioned mere meters from my apartment in Tianmu.  

Reaction to InvestAsian’s stark statement has been varied. Some responses have noted that Taiwan’s recent presidential election underscores the country’s stable political climate and strong legal framework. Furthermore, Taiwan’s economy has demonstrated consistent growth. The Directorate General of Budget, Accounting and Statistics (DGBAS) recently raised its forecast for Taiwan’s gross domestic product (GDP) growth in 2024 to 3.4% – the highest in three years – further enhancing the island’s appeal as a destination for real estate investment. 

At the same time, the magnitude-7.2 earthquake that struck Hualien County on April 3 and the extensive property damage it caused have raised concerns among potential investors. Although it would seem logical for reconstruction efforts to be funded by earthquake insurance payouts, that is often not the case. 

In Taiwan, earthquake insurance is mandatory for all homeowners with a mortgage. The premium remains uniform at US$41 (NT$1,350) per month, as mandated by the Taiwan Residential Earthquake Insurance Fund, regardless of the property’s condition. Homeowners in Taiwan who wish to maintain earthquake insurance coverage after paying off their mortgage will find the basic premium unchanged. According to government policy, all non-life insurance companies are required to offer this service. Additionally, homeowners can purchase commercial insurance policies to extend their coverage. 

Following the April earthquake, it was reported that only around 34% of Taiwan’s homes are covered by earthquake insurance, leaving a majority of the housing stock, much of which is over 25 years old, without comprehensive coverage. This statistic is particularly alarming given the aging nature of Taiwan’s residential buildings. In Taipei alone, the average building age is 37.6 years. The need for urban renewal and seismic retrofitting is evident, not only to enhance earthquake resilience but also to meet Taiwan’s commitment to net-zero emissions by 2050, as reconstruction generates more emissions. 

The disparity in real estate demand between Taiwan’s major cities and its less populated areas is striking. At the end of 2023, the overall housing market in Taiwan was cooling, characterized by declining demand and a slowdown in new residential construction starts. However, market analysts note a robust demand in Taipei, fueled by increasing urbanization and limited land availability. Many residents from rural areas are drawn to Taipei for its superior infrastructure, efficient public transportation, modern amenities, and well-maintained roads and highways. 

But the market’s true Achilles’ heel is the exceptionally high – and still rising – cost of real estate. In Taipei, buyers need to pay about NT$228,000 (US$7,000) per square meter. Consequently, an average 100-square-meter, two-bedroom house or apartment in Taipei sells for around NT$22.7 million (US$700,000). To put this in perspective, consider that Taiwan’s average monthly wage in 2023 was only NT$58,545 (US$1,800).  

Aggravating the situation is Taiwan’s particularly high property tax, especially for non-residents and foreign investors. A taxable estate value of up to US$1.5 million incurs a 10% tax rate. For property valued between US$1.5 million and US$3 million, the rate rises to 15%, and for values above US$3 million, the rate increases to 20%. These rates should be considered in light of reports indicating that the return on investment for rental properties often nets less than 2%. 

So how do Taiwanese people manage to enter the real estate market? The answer lies in low interest rates and lengthy mortgage terms. Some banks offer mortgage rates of just over 2% per annum, with the average mortgage term ranging from 22 to 30 years. These seem to be the factors continuing to sustain Taiwan’s real estate market. However, it’s important to note that these favorable rates and terms are typically available only to Taiwanese citizens.  

While Taiwan generally welcomes foreign investment in real estate, non-Taiwanese citizens may face some restrictions and challenges when buying property. In some cases, caps are imposed on the percentage of a property or real estate project that non-Taiwanese individuals or entities can own, complicating the process of acquiring property outright. Additionally, non-Taiwanese buyers often face additional approval processes and bureaucratic hurdles when purchasing real estate in Taiwan, which can be both time-consuming and complex.  

The reasons for such hurdles can be as simple and frustrating as a reluctance by Taiwanese banks to deal with foreign nationals even if those individuals meet all the requirements. 

An average 100-square-meter, two-bedroom house or apartment in Taipei sells for around NT$22.7 million.

That reluctance to provide mortgage loans to non-Taiwanese is rooted in several factors. Banks everywhere in the world assess the risk associated with lending in real estate transactions by focusing on criteria such as income stability, credit history, and collateral. For foreign nationals, particularly those without long-term residency status in Taiwan, accurately assessing these factors can be more challenging. This often leads Taiwanese banks, already inclined to take a conservative approach lending, to view them as higher-risk borrowers. 

If a foreign national lacks an extensive credit history in Taiwan, banks may find it difficult to evaluate their creditworthiness and accurately assess the risk of default. Some banks also cite currency exchange risk as a concern, but that risk is often overstated, as long-term non-Taiwanese residents typically seek loans in New Taiwan Dollars with attractive interest rates. The primary foreign currency component usually involves transferring substantial sums into Taiwan to meet the higher deposit requirements imposed on foreign borrowers. 

Non-Taiwanese residents often express frustration regarding the process of opening bank accounts in Taiwan. Taiwanese banks sometimes justify their extensive documentation requirements by citing concerns about money laundering. These documentation hurdles then seem to multiply when foreign residents apply for mortgage loans. Requirements include proof of income, residency status, and other financial records. Meeting these documentation requirements can be more challenging for foreign residents, leading to delays or difficulties in obtaining financing and missing out on desired properties. 

Despite the conservatism of Taiwanese banks, Taiwan is trying to position itself as an international market and is committed to global environmental initiatives. In April 2021, President Tsai Ing-wen announced Taiwan’s commitment to achieving net-zero carbon emissions by 2050. This pledge aligns with similar commitments made by nations worldwide in response to the global climate change crisis, and it has direct implications for the property market. 

In March 2022, the government issued a blueprint, entitled Taiwan’s Pathway to Net-Zero Emissions in 2050, outlining plans to reach that objective by promoting technology, research and development, and innovation across crucial sectors. This strategy is designed to guide the green transition of industries and stimulate a new wave of economic growth. Concurrently, the Taiwanese government is actively promoting green financing and ramping up investments to achieve various key milestones in environmental sustainability. 

By global standards, many Taiwanese buildings are outdated and energy-inefficient. The net-zero 2050 blueprint mandates improvements in exterior design and sets higher standards for both building energy efficiency and appliance energy use. By 2050, it requires that 100% of new buildings and more than 85% of existing buildings achieve near-zero emission status. This ambitious endeavor is expected to continue under the incoming administration of President Lai Ching-te, with no anticipated deviations from Taiwan’s stated commitment. 

Evidence from Taiwan suggests that green buildings positively impact occupancy rates, rents, and sales prices for both new constructions and renovations. However, it remains uncertain whether an increased supply of green buildings will yield significantly higher returns on investment compared to traditional high-quality properties. 

A major concern for both domestic and foreign real estate investors in Taiwan may be the additional costs required to ensure that their buildings comply with zero-emission standards. This issue is especially significant given the vast number of rapidly aging terrazzo-floored walk-ups that dominate the Taiwanese real estate market. 

Another critical issue affecting Taiwan’s real estate market is the state of cross-Strait relations. The persistent tensions and associated risks are a daily reminder for those residing in Taiwan, to the extent that they almost become background “white noise.” But although foreign commentators and even China suggest that the current status quo may not last, these tensions do not seem to significantly affect decision-making in Taiwan’s real estate market. The economy remains relatively strong, and there is a generally optimistic sentiment regarding the incoming administration. Currently, it is challenging to accurately assess the degree of risk, and the average Taiwanese appears to adopt a pragmatic approach to the situation. 

So, how should we interpret InvestAsian’s gloomy advice mentioned at the start of this article? Taiwan’s real estate market certainly has so many upsides and downsides that evaluating it is somewhat akin to sitting on a rollercoaster. The question is whether investors are prepared for the “ride.”