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Taiwan house price crash: Island housing market defies global gloom and geopolitical tensions

By Nicole Willing

Edited by Vanessa Kintu

17:04, 17 November 2022

Skyscrapers in Taichung City, Taiwan
Mortgage rates have increased as the Bank of Taiwan, has raised interest rates three times this year – Photo: Shutterstock; Elwynn

High housing prices have driven the population of Taiwan capital Taipei to a 38-year low, as the Taiwan real estate market defies a global slowdown.

The international housing market is cooling at its fastest pace since the 2008 financial crisis as high inflation and rising mortgage rates have halted a boom prompted by the end of Covid-19 lockdowns.

Why is the housing market in Taiwan showing resilience, even in the wake of geopolitical tensions and the potential for a global house price crash?

Housing crash explained

What is a housing market crash? Property prices typically rise and fall in cycles, with peaks or bubbles – when average prices climb past their fundamental value – ending in a cooling of the market. When house prices peak, they can sometimes collapse rapidly.

Property market bubbles can occur when demand rises, often encouraged by government policies or excessive lending. Changes in economic conditions can lead to property owners no longer being able to pay their mortgages and being forced to sell. This increases the supply on the market and limits demand.

The Taiwan housing market has been volatile over the past few decades and has seen four major house price cycles: 1972 to 1974, 1978 to 1980, 1987 to 1989 and 2004 to 2016. The last Taiwan housing price crash occurred after an extended period of price rises driven by speculators anticipating that investments from mainland China would increase, uncertainty on the global financial markets and rising Chinese labour costs. 

The Taiwan housing bubble burst when the Taiwanese government introduced measures to curb speculative purchases and the economy slowed down.

Will there be a Taiwan housing price crash?

Taiwan house price index

The housing market in Taiwan ranked 30th in terms of house price growth tracked by UK-based property firm Knight Frank in 56 countries during the second quarter with an 8.4% annual increase in house prices, up from 32nd place in the first quarter.

“We expected a notable slowdown in the second quarter, both in terms of the index’s overall performance and in relation to the number of countries seeing house price declines in annual terms. Neither materialised,” the report said.

The population of Taipei has fallen to 2.46 million from 2.64 million three years ago. This is its lowest level in 38 years, as high housing prices have driven property buyers to other parts of the country. Domestic economic growth, loose monetary policy and low interest rates have pushed up housing demand and prices.

The higher prices have resulted in a housing crisis, with properties becoming unaffordable for many people. The national mortgage affordability ratio was a record high 39.62% of the median income in Q2, according to data from Taiwan’s interior ministry. This was up by 1.27% from the previous quarter, and 3.35% from the same quarter the previous year.

The Taiwan housing market index of metropolitan areas compiled by real estate firm Xinyi climbed 15.64% year-over-year (YOY) in Q3, to an all-time high of 144.58 points. This followed a 14.77% YOY increase in the second quarter and a 14.07% increase in the first quarter. But while prices continued to rise, the volume of sales has been declining since May. 

“The market boom has reached a plateau”, and the market is consolidating, Xinyi stated in its quarterly review. Stock market turmoil, high inflation and interest rate hikes are weighing on the market, and the number of new mortgage loan contracts at Taiwan’s banks fell by 9.9% during the quarter.

A report from My Housing Monthly showed that confidence in the housing sector in northern Taiwan remained positive for the 15th consecutive month in October. However, the index dropped to 42.2, from 46.1 in September – moving closer to the 42 threshold that indicates a sluggish market and the potential for a housing price crash in Taiwan. 

Local elections in November are expected to result in buyers waiting for the outcome before making investment decisions.

Taiwan housing market outlook

A survey by real estate broker Evertrust Rehouse in September showed a majority of respondents felt it was best to hold off on entering the Taiwan property market until economic uncertainty settles. The broker revised down its forecast for housing transactions to 315,000-326,000 units this year, down by 6-10% from its estimate in June. 

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The number of people expecting house prices to rise dropped to 38%, a 2.5 year low. The number expecting prices to decline rose to 31%.

Rising property prices and higher mortgage costs meant that only 16% of the survey respondents said that 2022 is a good time to join the housing market, compared with 80% responding that 2023 or 2024 would be better.

Mortgage rates have increased as Taiwan’s central bank, the Bank of Taiwan, has raised interest rates three times this year, from 1.125% at the end of 2021 to 1.65% at its September meeting. The Bank is expected to raise rates again in December, with inflation running at its highest levels since 2008. 

The consumer price index (CPI) was 2.72% in October, down from a high of 3.59% in June. That high rate of inflation has pushed up costs for food, clothing, transport and other services, prompting some potential buyers to delay house purchases.

The New Taiwan Dollar (NTD) has fallen to its lowest level against the US dollar since 2016 as the greenback has soared on rising US interest rates, increasing the cost of imported goods while boosting revenues from exports.

Xinyi’s house price index jumped by 25.23% in the southern Taiwan technology hub of Tainan in the third quarter. 

Large capacity expansions at Taiwan Semiconductor Manufacturing Company (TSMC) and other semiconductor producers are attracting more workers to move to the area, extending the Taiwan property bubble. However, the global economic slowdown is expected to reduce demand for semiconductors, which could in turn weigh on Taiwan’s economic growth.

Dutch bank ING has revised down its forecasts for Taiwanese gross domestic product (GDP) to 3.2% for 2022, from 3.4%, and to 3.1% in 2023, from 3.4%.

Iris Pang, ING’s chief economist for Greater China, stated:

“We expect the future growth of Taiwan’s economy will be slower than previously expected next year if the global market for semiconductors does not recover... Slower global economic growth implies weak demand for goods and therefore semiconductors, as these are used in many goods.”

Analysts at Fitch Ratings predicted Taiwan’s GDP could expand by 2.8% in 2023, “underpinned by further reshoring, domestic semiconductor capacity expansion – despite order delays – and enhanced supply-chain resilience”.

However, ongoing tensions with mainland China remain a concern as “the international community’s perception of heightened security risks could hurt Taiwan's business climate and attractiveness as a destination for foreign direct investment, constraining the medium-term growth prospects.”

Whether there will be a Taiwan housing price crash could depend on the macroeconomic environment and government policies on inflation and interest rates as well as the housing market. If you are looking at market data to inform your investment strategies, keep in mind that global economic uncertainty and geopolitical tensions can make predictions inaccurate. 

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose. 

FAQs

Does Taiwan have a housing crisis?

Low interest rates have sent Taiwan’s house prices soaring to record highs, making property unaffordable for many people. The national mortgage affordability ratio – which measures the ratio of the median monthly mortgage payment to the median household’s disposable income – reached a record high during the second quarter.

Is there a housing bubble in Taiwan?

Taiwanese real estate form Xinyi’s house price index reached a record high of 144.58 in third quarter, although the market is slowing signs of slowing down.

Will house prices go up or down in 2023?

Whether house prices in Taiwan rise at a slower pace or start to decline in 2023 will depend on macroeconomic and geopolitical factors as the global economy faces a slowdown next year that could affect the Taiwanese market.

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