Buy EXPENSIVE, Rent CHEAP, why?

[Confuzius]

I am just curious.

Renting an apartment here, compared to the US, is just astronomically cheaper. From where I lived last in California, it seems rent is about a 5th of California.

But to buy, it doesn't seem like there is a HUGE difference.

That seems odd to me....

[beach_bum]

There's a huge difference in vacancy rates. Simply put, the oversupply of empty houses has resulted in rents much lower than mortgage payments. Everybody owns investment properties and most people would rather buy than rent.

[Mucha Man]

Little to do with oversupply. It's the result of a property bubble pure and simple. Prices have risen because investors in Taiwan are not terribly sophisticated and prefer easy investments like property. Wages however are stagnant and so there is no point asking for higher rent when no one can afford it.

In other parts of the country rent and prices are more comparable. I have a place in Taoyuan and the rent does cover 95% of the mortgage.

[navillus]

I've often wondered the same thing. I live out in the sticks in a fairly old 3 storey house, paying 6000NT a month rent. I bought a place where I have a school for over 5 million and in the beginning was paying over 14000 a month in interest on the loan. My wife has the idea to buy another house, but no way I'm going down that road again. Prices have only gone up and we'd be looking at about 7 million for something similar these days. I could just live in this house for over a thousand years for the same price.

It probably has something to do with those folks with money buying houses as investments, leaving millions of empty houses in Taiwan, and therefore the need to build more at inflated prices.

[beach_bum]

Little to do with oversupply.

Ok. But then you write:

It's the result of a property bubble pure and simple. Prices have risen because investors in Taiwan are not terribly sophisticated and prefer easy investments like property.

When everyone is investing in the same thing, what does that usually result in? Oversupply and a bubble situation. People here have taken advantage of low interest rates to buy up investment properties. Since buying is much prefered to renting here, landlords will take what they can get here for rent. It's not uncommon for units to remain unoccupied for years on end. Now, of course, if there is a significant rise in interest rates, we'll see prices crash and forclosures aplenty. Action has been taken to cool things a little by removing incentives for home purchases that are not a buyer's primary residence.

[Mucha Man]

The oversupply you are talking about it concentrated in a few areas: Danshui, Sanxia, etc. It is not evenly spread and so should have little effect. The fact that there are 10,000 empty units in Danshui is not going to affect rent prices in southern Taipei, for example, as moving to Danshui, or other areas of great oversupply is not an option.

[Abacus]

Little to do with oversupply. It's the result of a property bubble pure and simple. Prices have risen because investors in Taiwan are not terribly sophisticated and prefer easy investments like property. Wages however are stagnant and so there is no point asking for higher rent when no one can afford it.

In other parts of the country rent and prices are more comparable. I have a place in Taoyuan and the rent does cover 95% of the mortgage.

I can see both sides to the oversupply argument. Yes, there is an oversupply of housing but MM is correct. Oversupply isn't the reason that rent is cheap. Rent is only cheap compared to buying because speculators have driven the housing market way up. Rental prices are what they should be while purchase prices are outrageous. I think a lot of pain is going to be felt in Taiwan when the market corrects.

[Mucha Man]

...I think a lot of pain is going to be felt in Taiwan when the market corrects.

Do you think so? I think the majority of people involved in the speculation can easily afford the loss. Ordinary families don't buy NT20 million apartments. They buy places they can afford and plan to live in. As long as interest rates stay low they won't be affected by a bursting bubble.

[Maceck]

Yup,
Taipei City and few surrounding areas in NTC are in the midst of a HUGE property bubble. The mainland is in a similar situation, except about 100 times larger. Most people in this world see gold and real estate as the only safe investments because the former will always be worth something, and the latter at least gives you a place to sleep. As MM pointed out, this phenomenon you point out is no different here in Taipei.

I too came from CA, and in SF where I was, the rents were high, but the mortgages where even higher! Bottom line: buying property in Taipei (or SF) is a TERRIBLE investment. But, if this is where you live, and you need a home to spend your life in, then buying here is not necessarily a bad thing.

Starting a 'when will the bubble burst' debate can be frivolous though because most of us are familiar with the US bubble that burst in 2008, but this one is different. The bubble here is a result of actual wealth placement, not a calamity of 'No Money Down' loans and unthinkable leveraging by the banks.

[Belgian Pie]

The oversupply is easily adjusted ... 1000+ missiles ...