We bought a 35+yr old 25ping gongyu in wenshan just over 10yrs ago. Price was NTD3.85m + fees, we put down NTD1m deposit. I believe mortgage payments are less than what it would cost to rent the same.
Being a foreigner, at the time did I feel exactly comfortable buying, not really. With hindsight i’m real glad the wife pushed us into owning when we did, but would I feel comfortable buying the same property now at the current market price… err hell no. Would I love to upgrade to a larger apartment or a place with dare I say a yard… hell yes, could I afford to hell no nor would I want to take the risk or financial burden.
I suspect at some time in the future there will be a correction, I mean logic would seem to point to it, but we’re comfortable with it and aren’t considering cashing out, selling and moving back into rented accommodation due to the relative stability that owning provides, plus I guess the security of knowing its virtually impossible for us to go negative equity.
Once your on the property ladder aiming at having a single home to live in and not as a speculative investment, as long as mortgage payment are affordable vs. rent I guess it almost does not matter if the property is valued $1, $1m, $1b or xxx jelly beans its only paper money cos you need somewhere to live so you will never really realize the capital. Strangely in a way I almost look forward to a correction, so maybe one day I could afford that little patch of green instead of all this grey…
One other motivating factor for me and my wife (in our apartment purchase) was our inability to save without being pressured to do so. Saving for a down payment and then paying off a loan were exactly what we needed to get serious about socking some money away. We’re actually thinking of trying to time things just right and then buy a small studio apartment in Hualien, again to provide us the kind of motivation that we seem to need. I agree that you would need to be extremely careful now with things in Taipei and surrounding areas, but I think I would still seriously consider an apartment purchase in a couple of years if I didn’t already have a place.
Anything is possible. When I worked in Taiwan, I was making over 100K/month. I saved about 70K each month for five years, so when I finally decided to head back to the States, I left with plenty of month.
That seems to be a common opinion both in Canada and in Taiwan, but I think it stems from the fact that people are not looking at “money” in the right light. You seem to be looking at housing prices in nominal dollar terms, non inflation adjusted, and without any opportunity costs included.
While it may be true that the nominal price of housing in Toronto and Taipei has gone up since people started talking about bubbles and over priced markets etc, that in no way means you’ve been priced out of the market. That would only be true if you actually put your money in a shoe box and waited for house prices to go back down.
If however, you considered inflation and opportunity costs, you would have been earning a rate of return on that money you didn’t put in the home, and now years later that money would have grown far higher than it would have had you actually bought that home years ago. From an investors standpoint, that house you had your eye on in the past is now cheaper for you, relatively speaking. When you include opportunity costs, house prices in Toronto and Taipei are becoming ever more affordable with each passing year.
Nobody can say for sure what the future will bring, but quantitatively speaking the odds are good real estate in Canada and Taiwan will significantly under perform other asset classes going forward. I have no idea what the nominal house prices will be. Due to inflation alone they will probably be higher, but that is irrelevant. All that matters is inflation adjusted relative value, and in that sense I can say with reasonable confidence house prices will continue to under perform and become cheaper over time.
The baby boomer generation (aka everybody needs to own a home with a two car garage) has distorted the facts for subsequent generations. Bottom line, don’t listen to your parents. Real estate is simply not a good investment compared to other asset classes, and that doesn’t even include the fact that if you’re an owner rather than just an investor, it’s a negative income stream due to property taxes, maintenance costs, and other costs.
Even assuming you got a good return on the money you were going to put on a down payment and so today it is still 20% of the value of the property (a huge assumption for the average person who may in fact be borrowing from relatives), your salary has not grown fast enough to cover the higher mortgage payment. Since wages are not growing as fast as housing prices are rising it’s pretty hard to make the point you are without sounding ridiculous out of touch with the lives of ordinary people.
Can you explain this alchemy a little more? Housing to wage ratio used to 8:1 and last I looked it was 20:1. How does that represent housing becoming more affordable?
I usually agree with Brent but sometimes he takes it a little too far. There are very few investments that have grown as much as Taiwan housing in the last 5 years. That doesn’t mean that it was a good idea to buy a house 5 years ago unless you possess hindsight. It was very risky to invest 5 years ago. Now it is ridiculously risky to even consider it. As far as I am concerned I prefer less risky investments even if that means that I miss out on the price movement that Taiwan’s housing has had in the last 5 years.
Yep Taiwan doubled down on property for the last five years,
going from damn expensive to ridiculously expensive (compared to value for money and earnings). It’s surely a Taiwan miracle, lets all spend our money on expensive concrete.
I don’t want to make an investment as such I just wanted to buy a place to call our own and make some alterations and not pay rent to other people. it also gives you a hukou in the area you live
in which is a pain in the ass to get otherwise, that’s important for kids schooling.
At the moment there are no save investments, stockmarkets are way up and have a huge risk (except oil maybe), real estate is up … not everywhere but then you’re in Taiwan and you want to live here, so, buying a house in Spain, Greece or the US doesn’t do you much good.
[quote=“headhonchoII”]Yep Taiwan doubled down on property for the last five years,
going from damn expensive to ridiculously expensive (compared to value for money and earnings). It’s surely a Taiwan miracle, lets all spend our money on expensive concrete.
I don’t want to make an investment as such I just wanted to buy a place to call our own and make some alterations and not pay rent to other people. it also gives you a hukou in the area you live
in which is a pain in the ass to get otherwise, that’s important for kids schooling.[/quote]
My friends haven’t had any trouble getting their kids into elementary schools as renters. Jr. High and Sr. High might be another matter though.
Regardless if you want to call it an investment buying a house/apt is the biggest investment that many will make. In addition people have used the not paying rent to others as a poor argument to justify the big investment. The problem with the logic is that you change the equation from paying rent to others to paying interest to the bank. For the first 5-10 years of a typical 30 yr mortgage 2/3rd’s to 3/4’s of your monthly payment is just interest. Tack on all of the yearly repairs, insurance and other ownership costs and you are actually throwing more money down the drain buying while building up a small amount of equity.
Buying certainly makes sense for many but it is (and has been) a poor choice for most. For example I think it was you that just needed to move from Taichung to Taipei for work. If this happens in a poor housing market when nothing is selling then you will have two housing payments (or 1 housing payment and 1 rent payment) to make. If people were already stretched thin by their housing payment then this is budget destroying for most. This happened to a friend of mine back in the states. I think it 2-3 years to sell his house while living 600 miles away.
Buying a house imo is an expense, not investment since you end up spending so much on crap to fill it up and redo interiors, maintain etc.
If considering investing in property - go buy some stock in property companies that are diversified. No maintenance, no hangups, no taxes, no tenants. Don’t fuck around buying houses.
The only good reason to buy a house is because banks are still dumb enough to offer the leverage and capital to help you buy it. Your bank will turn it’s back on you once property returns go negative. The only other good reason to buy is because ppl are still dumb enough to believe urbanization brings great riches and impressive lives. Once ppl figure out a way to live great convenient lifestyles outside of gargantuan cities, buy shit online and still have social life, they won’t need to live in the big smoke and smell the filth and hear the motorbikes racing by each day.
Till then, with interest rates no lower to go, enjoy the last days/years of bubble glory and all hail the Japanese demographics society and housing market that comes our way.
Remember - the consumer wins during deflation. Deflation and competition is the triumph of capitalism as we get to consume more and have better lifestyles as prices go down (think electronics, food, products). Since property is fixed, it’s rigged and we can’t really produce more of it. If property prices came down, all would benefit - locals and foreigners alike. IMO, this is government’s failure to understand urbanization and not manage a nation’s scarce resources properly. If they were doing their job, they would scrap the crap and build higher and greener until supply matched or > demand. Also government failure by getting in bed with developers and skimming from the ppl and big business. Also government failure by cutting interest rates to encourage the rich to speculate and poor to get forced out - a worldwide phenomenon.
30 years of mortgage is a long commitment. The relatives might help with down payment, then the couple will need to pay the monthly debt. But what would happen in case of divorce or death of a spouse ?
Usually inflation and lowering interest rates and rising house prices would have eaten away the debt , but the future broadly speaking may see the opposite with stagnant wages, deflation and eventually, higher interest rates. I agree governments should regulate housing just like they regulate water , would save a lot of hassle, the country Im from went bankrupt from reckless investments and now, just 7 years later, had the fastest rising house prices in the world in 2014 as official government policy is to make housing MORE expensive!
(their logic: improve bank balance sheets, reduce negative equity numbers, restore confidence, more tax earned on stamp duty…except that young people are once again screwed… ). You couldn’t make this shit up.
Taiwan house prices have increased on average about 12% annually since the bottom point you are cherry picking several years ago. Are you not aware of any investments that have done better than that? There are several, which isn’t even really the point since 5 years is hardly representative of a period worth analyzing. It goes down to mid single digits if you back up a little further, and low single digits further than that. And in other countries, like Canada, the US and most of Europe, home prices barely beat inflation. But even if we do use a nearly useless cherry picked comparison of just 5 years in Taiwan, there are still other investments that have done better. And, taking it a step further, what about today going forward? Are you honestly saying you don’t know of any investments that you expect will do better than Taiwan real estate going forward?
Anyway, my point was there is an opportunity cost of investing in real estate and despite what the nominal house prices are showing, the actual real prices may not be increasing as much as people think when they factor in other investment choices. Real estate has under performed stocks in every period since we started tracking these things, and it’s not by a small amount. Stocks have returned more than double the annualized returns of real estate and they pay dividends which have a double compounding effect due to an increase in both the dividend yield itself and the increasing of the dividend yield over time. Anytime you forgo buying a house and put that money in the stock market instead, in the long run house prices get relatively cheaper for you.
On an unrelated side note just in case people misunderstand, I’m not saying put all your money in stocks :no-no: Just that you should obviously have far more money in stocks than you should in real estate. Real estate is the most illiquid, undiversifiable asset class there is. Stocks should make up about 60% of a persons portfolio (REIT’s should be considered stock allocations) where as physical real estate assets should be about 10%. Which means, if you have your eye on a 1 million USD home, you better have a net worth that reflects it or that house will put you over diversified in real estate.
I don’t know about you, but my net worth isn’t high enough to place 10% of it in real estate and have that house be more than a shoe box. Therefore, investing my money and renting my residence is the obvious choice from any rational investment perspective. And since I make more investing than house prices go up, that house I eventually do buy when my net worth is high enough to justify it will be relatively much cheaper. But people aren’t rational investors which is part of the reason why the financial crisis happened in the first place. For some reason they like to massively over diversify their investments into real estate, in many cases having 50-100% of their net worth in a home. :loco:
The cherry picked 5 year number was picked since that was about when the imminent housing bubble thread was started. Taiwan’s housing market had been strong before that.
The return on real estate has been far higher than the 12% that you stated. The investment is only the 20% down (typical mortgage) but the 12% return is on the full value of the house. And the interest on the loan is really low.
I completely agree with you that it is a bad investment for so many reasons but in total hindsight it has been an outstanding investment. There is no doubt about that.
[quote=“Abacus”]The cherry picked 5 year number was picked since that was about when the imminent housing bubble thread was started. Taiwan’s housing market had been strong before that.
The return on real estate has been far higher than the 12% that you stated. The investment is only the 20% down (typical mortgage) but the 12% return is on the full value of the house. And the interest on the loan is really low.
I completely agree with you that it is a bad investment for so many reasons but in total hindsight it has been an outstanding investment. There is no doubt about that.[/quote]
In my personal experience the profit on a Taipei City apartment bought ten years ago and sold last years was 300%. Since then I’ve found agriculture to be a good investment, second only to investing in my own growing company. Looking to buy property outside Taiwan now though. Besides bad fundamentals for property investment here, the wretched educational system has been a deciding factor in that decision. Bottom line for me on a property investment though is if I wouldn’t be happy living in the house/apartment apart from its economics I won’t buy it.
I noticed that the use of leverage is something that’s being overlooked by most in this thread. Yes, the return is on the full amount (the bulk of which comes from the bank at a low rate of interest), and the down payment is usually obtained through help from relatives (at no interest in most cases I have to imagine). So the people that have done well in real estate over the last decade in Taiwan have done really, really well.
The 5-10% of rich/connected who already have access to capital and loans, have done really really well playing with the bank’s money. A few other’s got on board later on and also made a buck. Well done to the capitalists.
The majority saw their prices rise but haven’t seen an upgrade in salary or career… If they wanna buy a new place, it’s still fuck off expensive on average salaries of $30-50k esp if you have kids.
Hence - the more unequal the society has become and will become without government reigning in this speculative bullshit. High property pricing is like an extra layer of tax for layman who wants to go about living in the city.
They are decimating their youth population and economic prospects as people forego having kids, kids are too expensive given the cost of mortgages and kindergartens etc.
Wow, don’t know where that came from. As far as the sub-theme within this thread related to how real estate over the recent past has compared to other investments, I agree with Abacus that there is no comparison. As to the new sub-theme of death to the capitalists, I couldn’t agree more vehemently.
The biggest problem with this debate is the opposing base assumptions. HHII is assuming a young couple have no capital or investments capable of growing faster than real estate appreciation because their salaries are too low. Brent Golf is assuming everyone can at worst live forever so that even the lowest savings rate can grow into a diversified portfolio over time, of which real estate is but a healthy portion.
