Tuesday, March 23, 2010

Taiwan luxury poised for take-off

Taiwan Prepares for the Arrival of Luxury Investors

International Herald Tribune, March 11, 2010

Taiwan’s luxury property market — long passed over by international investors — finally may be poised to attract overseas money, analysts here say.

Like most real estate markets worldwide, Taiwan’s took a beating in the global recession. But now a strong recovery, tax cuts, stable political relations with China and expectations of a flood of mainland Chinese investment have combined to drive prices to record highs.

Some already fear a bubble, but real estate experts here dismiss the idea. They say demand continues to outpace supply in Taiwan’s relatively small luxury sector and will do so for the foreseeable future, especially when Chinese and other overseas money starts to arrive.

“Taiwan’s luxury home market will become more international,” said Greg Yeh, an adviser to Evertrust Rehouse, a real estate agency based in Taipei that specializes in luxury residential property. “Taiwan was closed for too long, but now, you will find a new Formosa,” he said, using an old name for Taiwan.

In preparation for those overseas clients, the agency has begun preparing sales materials in English and the simplified Chinese script used on the mainland. (Traditional Chinese characters are still used in Taiwan.)

There has already been a trickle of Hong Kong investment and early, under-the-radar mainland Chinese investment, Mr. Yeh said. Taiwan lifted the ban on mainland Chinese investment in luxury real estate for personal use last summer, although some related regulations were not fully implemented yet.

At the moment, less than 1 percent of the property market in Taiwan involves overseas money — and most of that is in the commercial sector, said Tay Her Lim, a property analyst with the brokerage CLSA in Taipei.

There are no outright restrictions on overseas investment now, but there are several factors that make it difficult, said Mr. Lim.

All the transaction documents are in traditional Chinese. There is little transparency, so unlike Hong Kong or Singapore, it is impossible for a buyer to determine a property’s history. Banks in Taiwan are wary of lending to overseas investors. And, unlike markets in Thailand and even Malaysia, developers and brokers in Taiwan do not have much experience packaging products for overseas investors — with plenty of prospective owners lined up to buy, they have not needed to, either.

The current boom is still being driven by wealthy Taiwanese. A flood of local money has come back to the island since President Ma Ying-jeou took office in May 2008. In the last two years, Mr. Ma has stabilized relations with Beijing and slashed the inheritance tax to 10 percent from 50 percent, actions that helped improve investor confidence after the eight-year administration of the brash, pro-independence President Chen Shui-bian.

Mr. Yeh said about half or more of the buyers in the current luxury market were “taishang,” a local term for wealthy Taiwanese doing business in mainland China, like Terry Gou, the celebrity chief executive of Hon Hai Precision, the massive electronics manufacturing services company. And of the recent purchases, Mr. Yeh estimated, 60 to 70 percent were for the buyers’ own uses, 20 to 30 percent for speculation and the rest for tax reasons.

“You have low interest rates, underdevelopment and market appetite,” said Mr. Lim. “It’s in a sweet spot now.”

Agencies here have different definitions of Taiwan’s luxury-home market.

Evertrust Rehouse defines it as apartments of at least 80 ping, or 2,800 square feet, and valued at around 1 million Taiwan dollars, or $31,500, per ping. An 80-ping apartment is the equivalent of 264 square meters. In Taipei, there are only 2,000 such units, with 1,000 more under construction, Mr. Yeh said.

Mr. Lim said there were fewer than 5,000 units in Taipei valued at more than 96 million dollars. “For a country that’s supposedly among the richest in Asia, the luxury market is actually quite small,” he said. “That’s why we’re so positive on Taiwan — especially since cross-strait relations have improved.”

He also noted that luxury-home prices here were still only a quarter to a third of the price of Hong Kong’s.

“Taiwan has the perfect recipe,” he added. “The problem is it hasn’t had the attention before, so they’re not prepared. Give it a few years and it should be attractive.”

The most sought-after developments are attracting high prices.

For example, one new luxury-home project, Keetai Taida, developed by Keetai Properties, is not even in the city’s prime luxury areas like the Xinyi, Renai Road and Shilin districts. But its asking price of as much as 2 million dollars per ping matches the current rate in those areas.

When the agency announced the sale of Keetai Taida’s 30 units in January, more than 200 clients expressed interest, according to a local weekly magazine.

The real estate broker pursued “Xinyi-class” customers with letters of invitation to see the property, Alice Chang, a Keetai Property spokeswoman, told Next Weekly magazine. Anyone who cannot pay prices similar to those in the luxury neighborhoods “won’t be able to afford it,” she told the magazine.

Now, all eyes are on negotiations for a cross-strait trade deal, what is being called the Economic Cooperation Framework Agreement, which the Taiwan government wants to sign as early as May. Many are hoping that deal will relax the remaining limits on Chinese investment in Taiwan real estate and produce more interest.

Wendy Hsueh, director of consulting and research at DTZ, a real estate services company, said many market-watchers were hoping the trade deal will do for Taiwan what the Closer Economic Partnership Arrangement did for Hong Kong in 2003 — create a surge in property prices. “If we can follow the CEPA model, luxury property will have more prospects,” Ms. Hsueh said.

But she expects it will take another two to three years before all the details and regulations on Chinese investment in Taiwan real estate are completed.

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