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Taiwan Real Estate Report Q3 2011
Business Monitor International, July 2011, Pages: 52
Taiwan is interdependent on China and the state of the market on the mainland has a major bearing on activity in Taiwan’s real estate sector. The Chinese economy is slowing through 2011 and the same thing is occurring in Taiwan. The residential property market has been rampant, while commercial space saw sharp falls in rents in 2009 and – although local sources reported that they stabilised in the first half of 2010 – both retail and office space saw large drops again in H210. Some were particularly severe – minimum-end rental costs for office space were down by 50%.
Commercial real estate in the country was affected by the global downturn in trade and has fluctuated over the last two years. However, there are a few factors which may well increase demand over the next few years. Additional investment in the industry, particularly from insurance companies and from those targeting the increasing numbers of Chinese mainland tourists, may well fuel demand in the coming years. However, the government’s intervention to help stem a rampant residential property market may push developers to look at commercial space instead.
Some of the key opportunities in the real estate market include:
- Looking forward, rental rates will at worst move sideways (and more likely increase somewhat) throughout both 2011 and 2012. The highest increase is likely to be for retail space in Taipei, which will rise from US$70 per square metre (m2) per month in 2009 and at the end of 2010 to US$79.2 in 2011.
- The rampant residential housing market and sharply rising land values must have pushed up the capital value of commercial space.
- CB Richard Ellis (CBRE) is planning to invest US$100mn in Taiwan’s commercial real estate, according to the Taipei Times. The company’s objectives include training local government officials on retirement fund management and setting up a ‘speciality store’ in Los Angeles, US, to promote Taiwanese culture.
- The opening up of borders with China, to allow Chinese individuals to visit Taiwan from June 28 2011 means there has been a sharp increase in land purchases, according to the China Post.
- CBRE reports that no new office space supply is likely to come online before mid-2012 in Taipei.
Some key risks to the current real estate market include:
- Conditions in the Taiwanese real estate marketplace changed dramatically over the course of 2010 and there is always the chance that industry projections will be wrong again. The marketplace is so thoroughly tied to China, and (independently) to the world trade market for goods, that external factors can have a major impact on the fortunes of the country’s real estate sector.
- Government intervention to help stem residential property price increases has also pushed yields down substantially in the commercial sector. This, coupled with an oversupply of space in Taipei, particularly in the retail and industrial sub-sectors, has resulted in a slump in rental rates and continuing high levels of vacant space.
- The state has recently intervened in the galloping residential property sector by bringing in a luxury tax, set at 15% for properties (amongst other ‘luxuries’) sold within a year of purchase and 10% for those sold within two years.
- CBRE reported that in Q211, a new ordinance came into effect which requires insurance companies to apply for building permits within nine months of buying plots of land. The company suggests that this is why Farglory, in particular, bought so much land in Q111 (the company spent TWD6.1bn).
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