Luxury Tax for Taiwan House Market, Is That Enough?

   According to a survey released by the Construction and Planning Agency of Taiwan yesterday, Taipei house prices reached an historical high in the forth quarter of 2010. For quite a long time, rocketing house price has became one of the most important issues of financial regulation in terms of equality and justice in Taiwan. Youths in Taiwan basically can not afford such distorted price structure caused and sustained by overheating speculative house investment behaviors of the rich. And the situation is even worsen by the low interest rate that has been sustained for a long period.

    

    The rich class, including doctors, lawyers, entrepreneurs, and even for those senior officials who serve in the state-owned enterprises, can easily loan as high as 80% of a new house’ s purchasing costs because they can use good credit and sufficient assets as collaterals. The house speculators usually sell their “position” in a very short period immediately after the date they purchased the house. Combining with the effects of Taiwan government's policy not to impose tax on capital gains that derived from transacting on houses, nearly-free buying and reselling costs inevitably stimulate the house prices in an almost unmanageable manner. Per the yesterday’s survey, people want to buy a house in Taipei (where most youths worked and lived) have to pay an average price of NT$15 million ($ 500,000 U.S dollars) and an average unit price of NT$490,000 ($16,000 U.S dollars) per ping (3.3 square meters). But please keep in mind, the average salary for the first job of the universities graduates is about NT$26,000 (less than $900 U.S dollars) per month last year. It is almost impossible for those young people who did not have a rich father to buy their first house in Taipei.

   

    A couple of weeks ago, the Executive Yuan proposed an so called luxury tax legislation, calling for the imposition of an excise of 10 to 15 percent  on people buying and selling properties for non-residential purposes in less than two years. Put the foreseeable severe debate among the real estate industry, house speculators and politicians aside, I think by and large, this legislation indeed echo middle and the poor class’ temper and impatience toward the government on its ability to deal with inequality issues. Nevertheless, I also consider such measure can only works by going along with limitation on the house speculators’ liquidity in terms of borrowing money from banks for the purpose of buying non-residential properties (second home mortgage) as well as carefully auditing of the dummy accounts that are used to purchase the properties for the house speculators. In addition, the success of the luxury tax legislation also relied heavily on how prudential the land administration offices conduct their investigation on the real transaction price of the non-residential house and how soon we can pass the rule-making to require every real estate transaction notarized by the certificated real estate appraisers.

   

    House price is not only the most contentious issue that casts doubt on justice and equality, but also a mirror that reflects the collective anxiety among youth generation in Taiwan. It is a simple objective but a complex solution is required, legitimate goal but collective wisdom is needed.