The cult of real estate ownership

In reading some threads as of late, and talking to people here in Canada (especially in Winnipeg where houses are cheap), it strikes me how much people buy into the concept of owning real estate through your personal residence as THE way to make money and build equity.

Now I get that Taiwan has low interest rates (even lower than Canada), and obscenely long mortgage terms, which makes it cheap over the long run - but does it really?

Simply put, if you factor in the years (decades in some cases) spent saving up for a down payment, likely in a very low interest savings account, along with the interest paid over 30+ years … I just don’t see how it is worth it. This also doesn’t consider maintenance, property taxes, insurance, and all the other little things that pop up as a homeowner.

I just have a hard time understanding how this beats just paying rent (let’s say at $20000NT/month), and investing the remainder into the S+P 500 over a similar period (say 40 years) - to me it doesn’t.

I know some people just see the stock market as too risky, but real estate is a risky business as well, and completely undiversified.

Ultimately, I just can’t see how it is worth it - but everyone’s money is their own, and we do with it as we will.

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I think this guy pretty much nails it…but of course there are reasons why you buy a house that have nothing to do with investment income. Understand that’s not what you are talking about though.

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I’m sure you wouldn’t feel the same had you purchased property in Taipei 2009, or basically any other major city.

But, yes, you are right it probably doesn’t make that much sense unless you happen to jump on the property ladder at the right time, except a lot of people are rather bad at saving so paying of a mortgage forces them to save.

It is nice though to have your own place you can make the way you want it, something you wouldn’t do with a rental.

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Millennials don’t buy that lie anymore with more of us becoming financially literate and making more money to invest. Unless you’re worth millions, property can be a way to diversify your investment. I don’t see it as a real investment for most people who aren’t in that position unless you’re lucky enough to go in on just the right time.

The opportunity cost of a down payment is something these people don’t consider. Better to rent and invest the rest into bonds or stocks for the average person.

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I think cause a lot of people made a lot of money in real estate in the 90s-2000s and that impression is stuck in the mindset of many in Taiwan, even though the same opportunities to make money in real estate don’t apply anymore in 2019. The TW Finance Ministry did a study with NTU showing that TW Property prices will drop an average of 0.3% over the next 25-30 years. This is Taiwans 5th housing cycle. The last downturn saw a slow 14 year drop, the one before that was 7 years.

Also most people don’t know how to invest in S&P 500 here, or that they can. Plus they can invest in Taiwans stock market. Property taxes are very low in TW, and theres the old idea that a guy needs a house and possibly car to qualify for marriage. Along with the Chinese mindset of the importance of home ownership, it’s a status symbol as well. But investment wise in 2019 I completely agree with you, it’s terrible.

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Property has been a great investment in most major cities worldwide as prosperity and population boomed.

Of course you are right there are other options most people just like the thought and security of owning their own place.

While I agree with all the points made about your own home not being the best investment and the Taiwan real estate market being a bit special, I think you are looking at it too narrowly. Real estate is not necessarily only about appreciation or rental yield.
Real estate is about having leverage. It is one of the few leveraged transactions accessible to everybody and the assets don’t fluctuate that much in price as for example stocks. If you inherit property (as many boomer kids do) you can do an equity release (might be called a different name in your country) and get cash that you can invest in more properties or stocks or crypto. Well managed leverage is very powerful.

Btw: Real estate ETFs outperform the SP500 in the long run (20+ years)

So in summary
step 1. Inherit Taiwan property
Step 2. Use property equity to invest.

I like this plan… Im open to inheriting anyones property in Taipei

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No.

  1. Get on the property ladder
  2. Leverage

How you get on the property ladder doesn’t really matter.

Real Estate is a good investment generally speaking. Its just not a good investment to enter into for Taiwan 2019 because of depreciation and low rental yield. Wouldn’t investing in stocks, ETFs also provide Leverage? Cash is king right now in 2019 and possibly 2020.

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Yes, you can get leverage from your portfolio in two ways: Margin trading and stock loans. Both are way more risky than real estate leverage though.

Example: If you want to get cash from your brokerage and use it to buy real estate in Vietnam you can get a stock loan of up to 50% of your portfolio for an interest rate like 4% (but probably only if you are a resident of the US, definitely not available to most of the world’s population). Of course stocks fluctuate, so if the market drops like in Q4 of 2018 or during the financial crisis and the selloff conditions in your loan agreement are triggered, the brokerage will liquidate your portfolio automatically. Right at the bottom of the market.

Drop like that don’t really happen often in real estate, except maybe during an actual war. But then you have other problems anyway.

Edit: If your portfolio is mostly something stable like US treasury bonds you can get a better loan.

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If you are in Winnipeg and can afford property, I think it’s a fine idea to buy as the city appears to be booming. With many new Canadians arriving, there will be a demand for housing in the foreseeable future.

Taiwan, with an ageing population and a nearly non-existent immigration policy, is a different story.

Guy

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Don’t really have maintenance costs if you buy an apartment as opposed to a house. Also house insurance here is dirt cheap.

when you say here you mean TW?
if you live in an apartment bldng and need to pay for cleaning, elevator maintenance guard and parking it’s not cheap

Of course it does lol.

I think, although I’m not sure as my wife handles it, we pay around 2k per month for that. Compared to overseas that is cheap.

My apartment is also the largest in the complex, so I wouldn’t be surprised if some pay only half of that.

Above is also in Taipei, but I would presume it’s same same in other cities in tw

If you rent, you have no property to leave for family when you die. I like knowing that even if my kids have a rough life they will at least have a home to live in.

not sure i agree with the reasoning.
lets say you buy when you are 30, die at 85 and leave a 55 year old property with 55 year old electricity, plumbing, foundations etc.
If they are lucky you leave your kids prime real estate, if they are unlucky you leave them an apartment in a part of town that became old dilapidated and scary.
you can never know what will the future hold for real estate.

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All the growth in inequality in the US has been due to housing. It’s the main divisor between the haves and have-nots.

Taiwan’s new book is due to the Hong Kong middle class coming over after being chased around by China…so I’m told. What this is doing is pricing out young Taiwanese. But that’s OK, they can get a visa to work and make money in China…just not remit anything back to TW. Again…so I’m told.