Sunday, December 05, 2010

Government to attack housing bubble?

One of America's least attractive exports is its bizarro-world Christianity. Here it says the end is near, plagues will increase in coming years, you can only rely on prayer, and you should get to a church quickly.

The property bubble, slowing spreading around the island, is compelling the government to contemplate strong measures to bring it under control. To curb speculation, which some say accounts for half of all transactions, one of these is a new property tax on real estate.

Taiwan’s central bank on Sept. 30 increased its benchmark interest rate by 0.125 percentage point for the second time this year after a jump in home prices fueled concern the island’s economic recovery may stoke a property bubble. Prices in the capital rose 7 percent from December 2009 to the end of September, said Stanley Su, an analyst at Sinyi Realty Co., Taiwan’s biggest real-estate brokerage.

The government is studying the tax “and we hope this would discourage speculation,” Lee told reporters in Taipei today.

The tax on property sales could be as high as 30 percent, the Taipei-based Economic Daily News reported, citing an unidentified official at the Ministry of Finance. Lee said the ministry hasn’t decided on the tax rate.

The government is also considering revising the land valuations more frequently to keep up with the exploding market:
Taiwan also plans to revise its so-called published property values every year starting as early as the second half of 2011, said Wang, who works at the Interior Ministry’s land department. The benchmark for annual real estate taxes is now revised every three years.
According to an RDEC-run online survey, rising costs for housing are the number one complaint of locals. Similarly, Taiwan Panorama reported a few months ago:
According to a survey of residential housing demand trends published by the Ministry of the Interior's Construction and Planning Agency, the price-to-income ratio in Taiwan's five largest metropolitan areas over the past few years has typically ranged from 6.0 to 7.0. For the last half of 2009 the figure stood at 7.08. But in Taipei City and County the ratio rose substantially-to 9.06 in the last half of 2009. It is estimated that residents of the silk-stocking Da'an District would have to put up 14.6 years of income to buy a home there.

The following graph clearly shows that the price-to-income ratio in Taipei City began to rise rapidly in 2006-2007, and it now stands as high as it has since the housing bubble that peaked in 1990.
1990 levels! Remember after that bubble popped housing prices in the major cities spent the next decade collapsing. Ugh.

It will be interesting to see what happens, given that powerful construction and land development interests are intimate with the government. Will the government have the courage to push prices down?
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Anonymous said...

I'd like to vote for your blog, but don't find it at Taiwanderful. How's that?

Michael Turton said...

I didn't list it there.


Okami said...

If the govt was serious about pushing down housing prices they’d just remove the first time homebuyer interest rate reduction and raise the minimum down payment. This would be a pretty good brake and remove some govt subsidies. They’d also streamline the permit system for building to more closely what people want, but can’t legally build, so they end up building illegally anyway. Once a building permit is ok’d after “construction” the building is never inspected again. So after you get that pass, you just rebuild on to your current structure.

What they will do is raise the cost of non-new home sales with a tax on sales that doesn’t affect new homes. They’ll argue that people want new homes and that the current system benefits building new homes which lowers prices. What they won’t say is that it benefits their construction company donors and completely screws the property improvement industry along with investors in properties that just need to be fixed up for the modern family. This will cause even more tax evasion as people just understate the selling and buying price even more, thereby leading to lower stated home costs for statistics. The govt has “fixed” the problem.

The banks are another key factor here. They were incredibly weak 5-7 years ago with the govt seeking to merge as many possible to limit their numbers and damage. They would be smashed by stalling or lowering home values along with defaults and people walking away from homes that are underwater. Basically you have a govt fed boil(bubble is too nice of a term for something like this) that needs to be popped and cleaned out. No one is going to want to be the guy who makes that call.

In other news considering the financial chicanery of the US Federal Reserve, I’m forced to reconsider my mocking tones of Ron Paul and his calls for a proper audit. That’s just painful.

I smiled at the humor of a believer in a coming apocalypse mocking other believers in another coming apocalypse

TicoExpat said...

Just taxing the people who own more than 50 properties -Tsai Mama and al- would be more than enough.

Problem is the not so wise people, caught in the middle, like a taxi driver I know with 3 homes in Sanxia. Loans are so cheap right now...

Don't forget the link between investment conglomerates -financial, banking, insurance ingeneral- and construction. When the vicious circle, or rather, when the music stops, let's see who's got a chair.

Thoth Harris said...

Who, at first, thought this article said "Government to Attack Michael Bublé"?

Michael Turton said...

Okami, those are good points. The issue is really one of reining in the developmentalist state. I don't see that happening.

As for your other comment, there's a world of difference between evidence-driven conclusions and religious ideology.

Okami said...

You can't really restrain a "developmentalist state" in any meaningful way. It's politically and financially difficult in a way that makes people avert their attention and lose their reason. It's also not clearly apparent why you should so in the first place as people don't tend to work down orders of consequence.

No politician is going to say that we need to rein in out of control lending. No MOFA personal are going to get religion and realize that an artificially low exchange rate is inflating the economy. No large construction company CEO/chairman is going to want the building permit system streamlined.

You see this thinking in a lot of countries. People were calling the mortgage bubble in the US for years before it burst, but lacked the political resources to push it back. In Europe a reporter would of just been fired for mentioning it. In Asia, they are just bribed.

Construction is an addictive industry. It employs loads of low-skilled labor, generates loads of taxable transactions, facilitates corruption and makes you feel good. It requires a complicit financial sector seeking high returns that would be more difficult in a normal economy. All those bank deposits and insurance premiums have to be invested somewhere. When that bubble pops and it always does, you generally lose 2-20 years of growth. It also diverts human capital from slower growing but more stable lines of employment.

I generally blame the poor economic education that most people receive if they receive it at all. From a Keynsian/Chicago school of thought, this all seems so right. This is normally the only way economics is taught. Hence why most people tend to be completely ignorant of the Hayek/Mises/Austrian school of thought that clearly warns of the dangers.

One company I was really impressed by was Ford. They were prescient enough to mortgage the company to the hilt just before the bubble burst, credit was easy to get and interest rates were low. They've held firm and remained independent at a time when the other 2 American car companies have become something of a joke.