After the Legislature passed a bill to deter house flippers in the presale home market Tuesday, it is likely highly leveraged property developers will exit the market amid a fall in liquidity and reduced opportunities to speculate in the property market, according to analysts.
Charlene Chang (???), a section chief at Taiwan Realty Enterprise, said the just passed amendments to the Equalization of Land Rights Act seek to tamp down speculation in the home market through conditional prohibition of transfers or reselling of purchase orders for pre-sold homes and newly constructed homes.
House flippers in the presale market have long been perceived as the major speculators looking to exploit legal loopholes governing the local property market, pushing up home prices to a level few in the young generation can afford.
In a statement released right after the amendments cleared the Legislative Yuan Tuesday morning, Chang said the restrictions imposed on the presale home market are expected to turn many property investors away from pre-sold homes, focusing instead on buying targets in the existing home market.
With many home buyers possibly leaving the presale home segment, Chang said, small and medium-sized property developers, who have limited funds on hand and need a high degree of leverage by taking advantage of money provided by buyers for pre-sold homes to build the homes in their projects, are expected to see a lack of fund support to complete such projects.
Under such unfavorable circumstances, Chang said, these smaller property developers are expected to leave the market, reining in speculation in home sales.
In presale residential housing developments in Taiwan, it is common practice for interested buyers to reserve the right to purchase a housing unit by placing a deposit and receiving a "purchase order" that includes an agreed-upon price.
These purchase agreements can then be "flipped" to other buyers when the price for the units goes up as the presale process proceeds, a tactic which speculators have used to make sizable profits.
However, under the newly passed amendments the practice will be prohibited, unless the purchase agreement is transferred to a person's spouse, a first or second-degree relative, or in situations to be defined by the Ministry of the Interior.
People who violate the rule will be subject to a fine of NT$500,000 (US$16,413) to NT$3 million, with the penalty also applying to realtors who help facilitate re-selling or transfer purchase agreements, according to the new amendments.
In addition, Chang said the restrictions on transactions in the presale residential property market are also expected to cause investors sitting on large assets to think twice before jumping onto the trading floor, so the so-called luxury home market segment could see a fall in transactions.
Luxury homes refers to residential property valued at NT$70 million in Taipei, NT$60 million in New Taipei, and NT$40 million in other cities and counties in Taiwan.
When more and more home buyers exit the presale market, Chang said the price gap between presale homes and existing homes will narrow.
Echoing Chang, Chuang Meng-han (???), a former associate professor in the Department of Industrial Economics at Tamkang University, said squeezed liquidity is expected to bankrupt fundamentally weak property developers, which could create problems in the property market.
Jessica Hsu (???) of H&B Business Group said the bill had been pending approval from lawmakers for a long time. As a result, some panic-led selling in the presale home market occurred last year as many investors anticipated the bill would be passed by the end of the current legislative session, at a time when the government was looking to cap skyrocketing home prices and assuage complaints from the public.
A property agent from Taoyuan said the city listed almost 27,400 units in 279 presale home projects last year, with the largest number of units allocated in Guishan District. Due to the amendments, the agent said, property developers in the city are expected to become more wary of launching new presale home projects.
Chiang Yi-hui (???), a manager with Taiwan Realty, agreed, saying although home prices remain stable in Taoyuan, many home buyers have become hesitant to strike a deal quickly as they look forward to cheaper homes in the wake of the government's efforts to reduce speculation.
The approved amendments also included another key revision which will prohibit private foundations from reselling, transferring, or appointing a future receiver of a property within five years of it being purchased.
Private foundations now need to present a proposal for property use to their respective governing authority and gain its approval before they can purchase a residential unit, according to the amendments.
The amendments also establish a reward mechanism for people who report illegal housing transactions or actual transaction prices that have not been accurately registered, paying informants a certain share of the fines collected.
Yang Yu-chuan (???), head of the Federation of the Real Estate Development Associations of the ROC, said he was disappointed with the government's move to push for the amendments, as the local property market has encountered a slowdown in the cooling local economy.
Yang said the construction industry faces a lack of workers but the government has failed to come up with measures to address the shortage, while the current rate hike cycle launched by the central bank, existing home hoarding taxes and more expensive land prices have also boosted the costs of home developers and made the situation more difficult.
Source: Focus Taiwan News Channel