Bubbling Taipei: the world's most expensive cabbages

A friend tipped me off to this article on the coming property bubble in Taipei. It notes:

Insulated from modern Taipei by a thin wall of knotweed, a gingham-shirted farmer adjusts his wellies and sprays insecticide on what, at an estimated $1.2 million (£725,000) each, are probably the most expensive cabbages on Earth. Even when the Taipei 101 tower was built 200 metres away from his garlic beds, the cabbage man and his wife — who do not live on the plot — held on to their patch, whose value has steadily risen. Consensus opinion holds that the 50m x 25m allotment may be worth about $150 million today, although some put it as high as $300 million and everyone expects it to gain about 25 per cent in value over the next 18 months.

While the value of that plot has been rising, Taipei has been doing little in the way of building work. Just 2 per cent of GDP has been spent on construction in each of the past five years — far below even the dismal levels in deflationary Japan.

The effect has created a distortion that makes a bubble likely, said Mr Lim. About ten floors of the Taipei 101 building are vacant but they represent as much as 35 per cent of the total grade-A office vacancies in Taiwan.

“All it would take would be for ten large Chinese companies or banks to move into those offices as their first Taiwan branches, and the market is instantly squeezed as cross-straits relations improve, there is just going to be too much money chasing too little space,” he said.

The article also notes that Taiwanese businessmen have repatriated over $17 billion back to Taiwan in the first half of the year from China, and may move back here to erect headquarters, further increasing demand for office space.

Government officials, as the article observes, have warned that Taipei's property markets could become a bubble when the island opens to China -- something observed in financial reports for the last few years.

What does a bubble mean for the people who actually live in Taiwan, rather than the transient population of Taipei Aliens and investors? Seeking Alpha, which will inundate you with spam if you comment there, but often has good commentary, had this to say about the Hong Kong property bubble:

It’s all very well saying you are going to “innovate”, but the reality is that bubbles are just a way for crony capitalists to grab an unfair share of the product of past “innovation” at the expense of ordinary people, they are zero sum; fat cats win and ordinary people lose, no different from how monopolies distort free markets.

Crony capitalism is how Taiwan runs; the KMT is simply pursuing a policy of enabling the Chinese communist party to become the senior local cronies.

Just take a look at Hong Kong -- property prices skyrocketed there since the island was given to China. This year a house there sold for US$57 million (in a building in which 40 floor numbers were deleted so that the highest floor is 88, a lucky number in Chinese, with the floor below being 68). To get a sense of what this will mean for Taipei, read the Global Voices blog posts on housing in Taiwan a couple of months ago. Hong Kong officials were described as saying:

When answering the question of a professional couple who could not afford to buy a decent house in downtown area, the Hong Kong Chief Executive Donald Tsang suggested them to build their home from smaller apartment unit away from the city, where there are still apartments marked at HKD4000 (USD520) per square foot.

.....

In fact the Chief Secretary for Administration Henry Tang Ying-yen, has spelled out his vision for Hong Kong earlier this year that “by 2020, improved road and rail networks may mean Hong Kong people could be better off living in Guangdong than staying put.”

Welcome to the future; perhaps our Tung Chee-hwa clone will be equally gracious toward the Taiwanese. In Hong Kong property bubbles devastated the poor and middle class, and the city-state's income disparity is greater than that of even the bubble-driven US economy.

Unlike Hong Kongers, Taiwanese have more space to move to, and the government is rapidly increasing rail and metro links with the areas around Taipei, apparently so that the Morlocks who will serve the Eloi from China won't have to move all the way to Shenzhen -- just Taoyuan. Moreover, the suburbs around Taipei have much land that could see bubble-driven development, in areas like Luchou and Sanchung and Xinchuang, where currently there are warrens of warehouses and small factories, many underutilized as their owners have gone to China, or perhaps just gone bust. Maybe we can expect mini-bubbles in places like I-lan, now less than an hour away by the Huashan Tunnel, and in Taoyuan. Keelung still retains its cozy, intimate feel, but with the cruise ships coming in soon, and good land connections to the capital, sooner or later it is going to dawn on people that the fewer rain days the city is experiencing over time, thanks to our love affair with pumping carbon into the atmosphere, are making the city more livable than it once was. And Keelung is only an hour from Taipei by bike.

China Worker has a detailed look at what speculative Chinese money has meant for ordinary Hong Kongers. In a very informative piece at Market Watch (read the whole thing!), Craig Stephen discusses another aspect of the bubble that Hong Kong is also suffering from: retail price rises. As hot money floods in to drive a speculative bubble, ordinary people not only get killed by the rising cost of housing, but also by the rising cost of retail goods:

Last week, I had a first-hand experience of property-induced inflation while shopping to replace a lost dress shirt. I visited the Hong Kong branch of a British shirt maker but made no purchase after finding the same shirt cost almost twice what I paid in the U.K., despite the absence of a sales tax here.

Huge rents in prime Central and the puny Hong Kong dollar explain the hefty mark-up. Perhaps cashed-up mainland Chinese shoppers will be happy to pay top-dollar for shirts as well as apartments with lucky numbers?

Elsewhere, you can see not-so-subtle inflation in restaurants, where two sizes of dishes are introduced, making you pay more for what you got before.

As well as eating into disposable income, rising prices threatens the retail trade and Hong Kong's competitiveness.

Again, Taipei has what Hong Kong really does not: a hinterland. If Taipei folks can't get good prices in Taipei, they will head out to nearby cheaper areas to get what they need, which may buffer the negative effects of hot money. Nevertheless, incoming speculative flows, casino gambling which creates nothing lasting or important, will drive up prices even higher in already pricey Taipei.

Much will depend on how willing the government is to defend the locals from the effects of speculative investment flows, which in turn depends on how active and strong Taiwan's democracy is, and how well the citizenry uses it to defend its interests. That power of democracy to preserve the interests of ordinary people is one reason the KMT has struggled so hard to isolate the agreements with China from democratic oversight, especially since the citizenry, as recent polls have shown, is majority-against the agreements (review the Taiwan News piece on the financial MOU, and shudder). Taiwan's construction industry is currently moribund; as speculative money flows in construction demand will rise, tying the local construction-industrial state firmly to CCP apron strings. Scary.

The Times article referenced at the start asks as it concludes, financial types are puzzled why there are so many people holding on to property in Taipei worth millions and not selling. Maybe because they have that powerful local drive to acquire land, but perhaps also because they know that if they sell, they and their descendants won't be able to afford a place in in the new order in Taipei.
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