will there be a drop in housing prices?

[GuyInTaiwan]

GuyInTaiwan:

I agree with you on some levels, hence I didn't use stronger words such as "everyone" or "must".

I think you're not being precise with words then, because you also wrote, "I for one believe people should own their home..." The "people" there does mean "everyone" and the "should" does mean "must".

But the problem is that, in the case where the home is rented and not owned, over the lifetime the expense spent on renting alone would amount to a pretty significant amount. It would probably still amount to "biggest spenditure" by most middle class. One way or other it would come back to the same point. Unless you live in Germany or similar countries where there are housing that is subsidized or regulated by the government, cost of renting would most certainly end up being more than a purchase.

In the majority of cases, yes, people will probably end up paying at least as much in rent. However, there are definitely lots of times (they might only be temporary, say five years) when buying a house would be the wrong thing to do and would lead to paying more over one's lifetime, either because the rent to purchase ratio is completely mismatched, or because someone can buy at the top of a bubble and end up under water, or because interest rates can go through the roof and mortgage payments can become huge.

Bottom line is, landlords are out there to make money. So besides paying for landlord's holding cost, renters are also paying a premium for landlord's profit. Seriously, unless one is in a situation where they foresee changes within five to ten years, they should seriously consider a purchase within means.

Except that not all landlords make money. Not everyone makes money in real estate. Not everyone makes money in any investment. In Taiwan, for instance, there must be lots of landlords who don't make any money, and probably even lose money. They think that's okay on some level for one of two reasons. Either they inherited the property, so they think it's already paid for (though actually losing money is still silly), or they're hoping for capital gains, or both.

Also, I see your point on financial advices from middle class, hence why I mentioned that there should be a definitively separation between an investment and a home. And that fact is, home is usually the one thing middle class can fall back on in the end, if they don't leverage it.

If it's the thing they're going to have to fall back on in the end, then that's all the more reason why it should be a (smart) investment. Being a home and an investment are not necessarily mutually exclusive. Likewise, being a liability and then eventually making more money from capital gains is also not necessarily a bad idea, but it does have to be considered.

One of the major problems I have with owning a home is that most people end up putting far too much equity into it (and by "far too much", that may even mean "any") when they could be getting greater returns elsewhere, which would set them up better for retirement. Why would/should people take the single biggest financial decision of their lives, and something they will probably have to rely upon for their retirement (in which case, yes, it is an investment), and accept middling returns (once the true costs are factored in)? I'm trying to live by a rule of thumb of 75+:20:5, where those three numbers mean a person's respective net worth tied up in investments, a house, and stuff (including a car), though I am actually trying to get the first category much higher than 75 and may end up with zero in the second.

Back before the whole bubble burst, its startles me everytime I watched the reality shows that show people making huge profits from flipping houses. I kept saying this shit can't keep going on... I had no knowledge of the subprime debacle. But when you see boatloads of people jumping into the same industry and money seemingly flowing out of nowhere, shits' about to happen.

I agree, but that's no reason to say that your house shouldn't be thought of as an investment in the long run.

Anyways I have to say, in times like these, unless I get positive cash flow from a real estate investment, I would probably bet my money on commodities...

I wouldn't necessarily do either or neither. I would try to estimate the underlying value of the thing in question, and then look at the asking price for it.

[headhonchoII]

Exactly theres no point saying, I'm going into commodities. Take each one at it's merit. Look at all the possible things that could change. Are you really trying to equate Gold, Oil, Natural Gas and Corn?
Same with housing. Location , affordability, timing, interest rates, so many variables.
For instance I would not buy in north Taiwan now. I might buy in certain places in Taichung or down South.
But each one would have to be evaluated on individual merit and my own circumstances.

[kaikai34]

I got married 6 years ago. Saved up for 2 years. Bought a little 17 ping apartment in Yonghe. Wife got pregnant 2 years later and so we decided to get a bigger place. Sold the apartment. Made about 800k. Bought a 42 pingger also in Yonghe for an obscene amount of money. Our neighbor bought his for about 4 mil less than we did 5 before. We have been living here for 2 years and got an offer for 2.5 million more than we paid for. It's a 17 year old building, and while it's practically right on top of an MRT station, this is not an 18 Million dollar house. We're not even in Taipei City fer crying out loud. We're selling and getting out. Housing prices are getting way too crazy. We're renting in the meantime. Like someone noted above, living in someone else's house sucks, but it's what I'm going to have to do for a while.

[SillyWilly]

I got married 6 years ago. Saved up for 2 years. Bought a little 17 ping apartment in Yonghe. Wife got pregnant 2 years later and so we decided to get a bigger place. Sold the apartment. Made about 800k. Bought a 42 pingger also in Yonghe for an obscene amount of money. Our neighbor bought his for about 4 mil less than we did 5 before. We have been living here for 2 years and got an offer for 2.5 million more than we paid for. It's a 17 year old building, and while it's practically right on top of an MRT station, this is not an 18 Million dollar house. We're not even in Taipei City fer crying out loud. We're selling and getting out. Housing prices are getting way too crazy. We're renting in the meantime. Like someone noted above, living in someone else's house sucks, but it's what I'm going to have to do for a while.

Think that's a smart move. Congrats on the nice gains.

[kaikai34]

I got married 6 years ago. Saved up for 2 years. Bought a little 17 ping apartment in Yonghe. Wife got pregnant 2 years later and so we decided to get a bigger place. Sold the apartment. Made about 800k. Bought a 42 pingger also in Yonghe for an obscene amount of money. Our neighbor bought his for about 4 mil less than we did 5 before. We have been living here for 2 years and got an offer for 2.5 million more than we paid for. It's a 17 year old building, and while it's practically right on top of an MRT station, this is not an 18 Million dollar house. We're not even in Taipei City fer crying out loud. We're selling and getting out. Housing prices are getting way too crazy. We're renting in the meantime. Like someone noted above, living in someone else's house sucks, but it's what I'm going to have to do for a while.

Think that's a smart move. Congrats on the nice gains.

Thanks. I hope it's the right move. That would suck if housing prices kept going up uncontrollably.

[SillyWilly]

Thanks. I hope it's the right move. That would suck if housing prices kept going up uncontrollably.

Interest rate cycles everywhere are bottoming. Taiwan is no exception. Interest rates may continue to stay near historic lows for the time being, but with history as my witness, once interest rates start to rise real estate markets start declining and significantly overvalued markets start to collapse.

Right now everyone in Taiwan believes that real estate will always go up and they'll continue to pour money into it until that fallacy is proved wrong and the property market collapses. By that time it will be too late. Canada, Australia, Hong Kong, Singapore, Taiwan - their market participants believe that "this time it's different." It's not. It's just a matter of time.

The question you have to ask yourself is: Do you wanna get out with a nice profit and wait for the collapse? Or do you wanna be potentially trapped in a bad collapse and watch your "paper" profits evaporate?

There is a saying in the financial world: No one ever went broke taking profits.

Picking the exact top of the market is impossible. The Taiwanese market as a whole yields less than 1% net per year based on rental income. That's pathetic! and a sure sign that the market is topping. It could last a another few years, but who's to say.

Good luck making your decision.

[Tony the Tiger]

I got married 6 years ago. Saved up for 2 years. Bought a little 17 ping apartment in Yonghe. Wife got pregnant 2 years later and so we decided to get a bigger place. Sold the apartment. Made about 800k. Bought a 42 pingger also in Yonghe for an obscene amount of money. Our neighbor bought his for about 4 mil less than we did 5 before. We have been living here for 2 years and got an offer for 2.5 million more than we paid for. It's a 17 year old building, and while it's practically right on top of an MRT station, this is not an 18 Million dollar house. We're not even in Taipei City fer crying out loud. We're selling and getting out. Housing prices are getting way too crazy. We're renting in the meantime. Like someone noted above, living in someone else's house sucks, but it's what I'm going to have to do for a while.

Damn Kirby, you're like an inadvertent speculator. Like a poker player who stumbled into the nuts

[Abacus]

I don't follow the Taiwan market closely but I'm very wary of it right now. Is there any substance to this article from the China Post (looking for flood info)? A 20-30% drop would be devastating in one year. Or is it just a sky is falling article?

http://www.chinapost.com.tw/taiwan/nati ... prices.htm

[Omniloquacious]

I'd say that China Post article looks about right. There may be a small chance that the market will heat up again, but there's a ten times greater chance that it will cool, either slowly or rapidly.

Kaikai, I think you're doing exactly the right thing to sell and rent until prices have dipped to a more rationally justifiable level. Congratulations on making such a solid profit from your first two forays into the housing market here. It's a lot easier way to build up your capital than working, isn't it!

I have put my house on the market, but I'm not very optimistic that I'll be able to find a buyer. An odd thing about the Linkou housing market is that houses don't seem to attract a premium over apartments: the price per ping is roughly the same for both. That seems very strange to me, and I struggle to understand it. If you buy a house like mine, you are getting the whole of the space that you pay for. If it says 70 ping on the title deed, you have at least 70 ping of indoor space to occupy. If you buy an apartment, you lose as much as a third of what you pay for to communal space. So to have 70 ping under your own ceiling, you need to buy around 100 ping. In Linkou, new or newish houses and apartments are both averagely fetching in the region NT$200~300,000 per ping, with more at the lower than upper end of that range.

On advice from the real estate agents who are handling the sale of my place, we're asking for a bit over NT$18 million for a 5-floor, 70-ping-on-the-deed, 85-ping-of-total-floorspace townhouse that's less than 4 years old, well constructed, and well fitted out and decorated. In other words, the same price as someone is willing to pay for Kaikai's mid-sized, 17-year-old apartment in Yonghe. But of course, that's just our asking price, and any buyer knows that there must be a lot of room to negotiate a much lower transaction price. We've set our bottom line at NT$16 million in hand, after paying the agent's cut. If they sell for around NT$16.7 million or more, they'll get 4%, we'll get our 16 million. If they sell for between 16 and 16.7, we'll get the 16 and they'll get the difference. If they sell for more than 16.7, they'll get 4%, we'll get the rest. So far, after about 3 weeks, they've brought 3 potential buyers to look, but none of those has followed up. My sister-in-law, who works for the selling agents, says that there's been a sharp drop in people looking to buy since mid-May. The agents have 3 months to find us a buyer at our initial price, and if they don't, we'll probably need to reduce the asking price. I'm fully expecting that to be necessary, and don't hold out much realistic hope of getting more than 15 million. A few months ago, I'd have expected it to be snapped up quickly at 15 or even 16 million.

If so many people are paying 20 million or more to buy unfinished apartments in Linkou (as has been the case), why should it be so much harder to find buyers willing to pay as much or even significantly less for a substantially larger terraced house in a fully occupied and fairly attractive gated community? I would much rather live in a house than in an apartment. My parents-in-law and sister-in-law both live in similar houses in Linkou, and they'd never consider swapping them for apartments, so I can't understand why there aren't more people in the market looking for houses rather than apartments in the same price range.

I would actually be very happy living in my house if only it wasn't in Linkou and if only I didn't have such awful neighbours. But whereas I really detest living in Linkou, a lot of Taiwanese apparently think it's a wonderful place to live, so my reasons for not wanting to stay here wouldn't apply to most people house-hunting in Linkou.

Anyway, if I do get lucky and receive an offer at an acceptable price, I'll sell without any hesitation and rent a home temporarily while I either search for a replacement in a cheaper location (ideally further south) or, like Kaikai, wait until there's a big dip in prices, and then buy again in a location I like better in the north (ideally Xindian).

[kaikai34]

@Silly Willy: We signed the papers. We are looking for places to rent right now. The problem is that very few of the places we've looked at measure up to our own place and the few that do really look nice, either don't allow dogs or is on the 6th floor of the gongyu jia gai... the sometimes illegal rooftop apartments. Stairs are no good because our dog is 12 years old and she has trouble with them.

@Tony: Yeah, ain't that how it works. Beginner's dumb luck.

@Omni: Thanks, I don't know how long it would have taken to save up that much money, especially now that we have a kid. Good luck on selling your house. The bad neighbor thing is shooting craps. Bad luck I guess.