Taoyuan Nights

News just in: Taiwanese inflation hits 6% (officially, of course - in the real world outside of politics, it’s far worse). Higher inflation means that lenders require higher interest rates to compensate them for the devaluation of the money they are lending - or they simply don’t lend. And higher interest rates mean… more problems for the housing market, besides the more obvious problem of people choosing to feed themselves, rather than starve in order to make their home loan repayment.

Meanwhile in other news, the government is going to combat inflation in house prices by … handing out free money every month to young couples to pay their rent or interest payments. Think about that for a moment… fighting inflation by handing out armfuls of money. Rather like trying to put out a fire by dousing it with petrol.

A more sensible way to make housing a realistic proposition for young people is to allow the market to correct naturally. After all, when houses get to 30% of what they are just now, young people won’t have many problems at all…

Ending on a cheery note: inflation is now rising faster than my salary, and the government is using the tax system to hand out giant armfuls of my money to other young people simply because they are married. Brilliant!

Someone once said, history never repeats, but it does rhyme.

Here is what happened in Tokyo and Hong Kong when their property prices zoomed in the way that Taipei’s have. I believe that in ‘house-price-relative-to-earnings’ terms, Taipei has recently exceeded the heights of these graphs.

So, dear reader, I show you a possible - indeed, likely - future.

Click on the pictures to view them fullsize from the original author’s sites.

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Japanese House Price Graph (Reinet)

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Hong Kong House Price Graph (CCI)

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If you look at the high point on those graphs… well, that’s where I think we are now. And if you look at the low point…. well, that’s where I think we shall swiftly go: 70-80% falls in property prices, and most of it too fast for anyone to hope to escape.

Let’s first take a look at the Taiwanese Government’s website about investing in Taiwan.

“Taiwan’s housing prices will rise 5-10% annually through 2010 at least, according to construction company and real estate brokerage executives speaking at a “real estate summit meeting” sponsored by the Taiwanese real estate magazine Zhu Zhan in early November. Some even declared this rate of growth would be sustained through the next ten years.”

” Others noted that the Olympics in Beijing in 2008 would not only boost China’s economy, but the economies of other countries in the region as well, and that Taiwan’s real estate market would be among those benefiting.”

Now, let’s take a look at today’s media, too. Bear in mind these journalists can’t be bothered to do their own research, so they’re simply serving up numbers presented to them by estate agents - whose interests are served best if it seems house prices are rocketing up!

With that in mind… take a look here at the China Post (Aug 1, 2008).

First of all, it again mentions the 10% July price drop in Taipei; and 15% drop in transactions.

Secondly, more information about the rest of the island. Taichung sees a drop of 5% in one month, in July alone. Closed deals were down by 30%. 5% a month annualises to… a 46% drop this year, before taking into account inflation… Kaohsiung had flat prices and a slight raise in transactions, but there’s no indication if this is just a normal seasonal ’summer rise’, or a seasonally adjusted figure.

I’d be interested to see if the other figures were seasonally adjusted - if they aren’t, the drop in Taipei and Taichung may be even more steep than the figures suggest!

Apparently there is an additional Autumn pressure on Taiwanese houses that I didn’t know about - Ghost Month! Quoting the China post, “Furthermore, as the Ghost Month has arrived, more sellers are expected to lower prices to attract buyers. In the Chinese culture, Ghost Month is the month of July on the Lunar Calendar, which this year lasts from Aug. 1 to Aug. 30. Most people are hesitant to buy houses during this period.”

Very interesting stuff - but the thing that stands out the most to me, is this quote from an estate agent who is talking about why people are selling, again from the China post article (my own emphasis added):

“most sellers lowered their prices in the hope of getting rid of their property as soon as possible, due to the mounting mortgage pressure“

Mounting mortgage pressure? With interest rates still near historic lows?

How on earth will these people cope if mortgage rates reach levels such as 15-25%, as they have in developed countries across the world in the past?

On the one hand we have the risk of even more price inflation if interest rates stay low and the currency gets weak. On the other, we have this ‘mounting mortgage pressure’ showing up at rates as low as 3%! Something tells me that Taiwan is not in for a good time in the next few years.

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p.s. Other news just in. Housing transactions in Taipei are now down by 60% in just 3 months… going into the summer! 60% down in 3 months…blimey!

Scott Sommers has trapped Taiwan’s bloggers on his blog. Now, it’s up to you to rescue them. Bravely find them on the page using your mouse, then lead the bloggers of Taiwan to freedom via the Escape Zone!

Click here to begin!

(Apologies, Scott… it was too tempting)

The Taipei Times refers to housing troubles in the north of Taiwan…

Finally, it seems like we’re there. The number of house sales is continuing to collapse (minus 15% taipei, minus 30% taichung in just one month) at what should be one of the best times of year for sales in most cultures. In other words, bye-bye buyers.

Of course, this is not even remotely surprising to anyone paying attention to the crashes in America, Australia, the UK, various European countries (Spain, Ireland, Italy), New Zealand, … all of which have followed nearly identical courses in the preceding 12-18 months.

Banks stop lending. Potential buyers stop buying (no ability to borrow). Sellers flood the market as they realise ‘the train has left the platform’. Potential buyers definitely stop buying as they see what’s happening! A two-tier market forms; some people who ‘have to get this money or we’ve lost everything’ with unrealistically high prices and houses that never sell; and some people smart enough to realise that a 20-30% price cut is probably still better than what they’ll get in a year’s time.

International money markets have been messed up for almost 12 months now, so even if people do want to buy, they can’t get the money because the banks can’t get the money. The banks just don’t have any capital left to lend out of their own and there is no willingness from large scale international institutional funds to take on bundles of mortgages.

In 6 months, price drops should be really obvious indeed, as estate agents scream at sellers to drop their prices. According to the article I quoted, prices are already down 10% in one month in Taipei.

Remember, a 50% drop cancels out a 100% rise, so a few 10% monthly drops relative to the peak can quickly become more significant than they first seem. Besides, annualising a 10% monthly drop shows you how serious it is, if it continues for any length in time.

10% monthly drops would turn your 10 million NTD Taipei apartment into a 2.8 million NTD Taipei apartment after 12 months. That might seem too much, but looking at history in a few different countries, you’d reasonably expect a market starting on a HPER of 12 to end up around an HPER of 2.5 or 3 (which is around or slightly below the long term average house price). Again, that represents about an 75-80% drop in prices.

This is extremely unfortunate for my friends in Taiwan who have bought houses in the last two years against my protestations. However, there was plenty of time to get out, and the warning signs that this was not a sane market were very obvious, specifically the crazy average-houseprice-to-average-earnings ratio in Taipei. There is not really any excuse for failing to take a few weeks or months to teach yourself about finance thoroughly, before you undertake what is probably the single most important financial decision of your life.

What happens next, I expect, is that most of the country is trapped ‘where they are’ - unable to change house, or escape debts they have built up. Meanwhile, interest rates rise as the central bank tries to keep inflation under control… gradually, people give up trying to stay current with their mortgage… and lose their house.

The next two to five years will be interesting to observe as a matter of academic curiosity, but for many people, I expect they will be very painful to experience.

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A side note: Normally it’s a bit strange to annualise high monthly drops, the way I did above to get large implied annualised drops.

But consider that we’ve seen plenty of huge international corporations drop 20-30% in market price within a day lately - on no news! Consider that in other countries, we have already seen house price drops of 70% (California, Florida for example).

If a large, diversified, well run international company can drop like that; if a house in a US state full of wealthy people can drop like that; then by god, a crappy little Taipei apartment can drop 70-80% too!

My mum came to Taiwan for 2 weeks recently to visit me and see a little of the island.

She had a great time - all my friends were really nice to her, and helped me to show her some cool places. I saw a few new places myself, too..

Mum, Leila, Ethan, and their children, shopping in a giant mall in Zhongli.

Exploring Taoyuan city centre

Tasting shui jiao (dumplings) for the first time, near Taipei Main Station.

Taipei City Hall area.

Enjoying the view from Taipei 101.

Looking out across Taoyuan city.

Exploring ceramics at Inge with Sean, Kyle and Leila.

The main Taoyuan city temple.

Visiting the Grand Hotel, Taipei.

Enjoying the decor, before lunch.

Travelling to Hualian County.

Discovering that in one Taiwanese hotel, only midgets can use the facilities (look carefully).

Reaching Toroko Gorge, Hualien.

Can you see mum on the bottom right?

Walking through the corridors of the Toroko.
This part of the road is said to be as ‘twisty as a Chinese dragon’.

Mum with Davie (our friendly host in Hualien) and his daughter Tina.

Stopping for a break at a lake near Hualien City.

Late night shopping in Hualien City with Davie, his son and a friend.

Exploring the beach.

First view of the Pacific Ocean

Myself, mum and Tina near “Cow Mountain”.

Exploring a temple on the East coast.

Back to Taipei. Looking from the Chinese Culture University (YangMingShan).

What’s that little building over there on the left?

Exploring the sulphuric geysers of YangMingShan.

Leila and Mum at an organic farm in YangMingShan.

Lots of wildlife…

Strange buildings in the mist…

Say Cheese…(Kyle, Sean, Leila, Mum and myself).

Kyle treating everyone to a healthy organic meal.

Picking Canna Lilies at YangMingShan.

Underground shopping at Taipei City Mall.

Visiting the Maokong Gondola, Taipei.

I wrote last October that I thought Shanghai’s stockmarket had reached truly epic levels of silliness, with price to earnings ratios being many times higher than that of developed countries, but with considerably higher risks and not obviously higher rewards.

Since that post, the Shanghai stockmarket has fallen almost 50%.

The FT article (linked above) is quite interesting. It’s becoming quite normal to see 5% drops each day in the Chinese stockmarkets.

Of course, I’m quite sure everyone will pull their money out NOW rather than 6 months ago, before it was too late. People are quite amazing at doing things badly with money.

Actually, though, if I had money in the Chinese stockmarket, I’d pull it out now anyway. It’s still overpriced. Unless the government takes actions to prop it up, I think it could quite easily reach a much lower (and more reasonable) price in the future.

UPDATE:

1. I notice that October 2007 was also when Warren Buffet massively sold out of Petrochina at a huge profit. The company’s share price has since fallen 60%.

2. Apparently the Chinese government is now modifying the stamp duty (share tax) laws to try and keep the market afloat. Why are price drops seen as a bad thing? Who knows.

I wrote a post about how it seems that the desire for friendship, purely for the sake of friendship itself, sometimes seems to be considered shameful in Taiwanese society. Instead, it feels like you must have some ‘justification’ for seeking contact with other people - research, language exchange, employment or whatever. Dating seems to be an even more extreme form of this situation.

The idea that in Taiwan, I should avoid seeking ‘friends for the sake of friendship’, is one that I’m not very comfortable with. I don’t see my friends as tools I can use to achieve tasks. Therefore, it seems there may be some cultural lines that I am unwilling to cross in my engagement with Taiwanese society.

After writing my previous post, I received some interesting replies, particularly those from Cary Allen, and Kerim Friedman. Thanks for writing, guys! For the moment, I’m taking the original post offline while I reflect upon the ideas raised in correspondance, to make sure I am being fair to Taiwanese culture.

Particularly, the idea of ‘cultural translations’ as a way of understanding ‘white lies’ in other cultures, is an interesting one.

“I just wondered if I could borrow some coffee” might be considered an example of a similar situation in early dating in western society, which due to its familiarity seems more an excuse than a direct lie or misrepresentation.

Is that something to do with the ’short-term’ nature of borrowing coffee, as opposed to the longer-term nature of ‘language exchange’ or ‘research’? Or, is it perhaps the ‘distance’ of borrowing coffee from a stranger, as opposed to seeking closer forms of interaction such as language exchange? Or is it something else? Am I applying two sets of standards here?

Either way, the idea of the necessity of an excuse in Taiwanese society, as part of forming a friendship, seems to remain as a seperate issue. This is something I’m still puzzling over.

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Anyway, please feel welcome to mail any ideas or suggestions to ‘mu’ @ this-blog’s-domain. And if you’re an intelligent Taiwanese person (age 22-32) and you want to make a new friend, it would be great to hear from you too.

This can be found near Chihkan Fort, Tainan…

Don’t worry, this blog is still alive, and so am I.

However, I have an illness that has meant I’ve been spending a little time in hospital, and getting plenty of rest. I’ll post more as the doctors find out more about the illness. I can say though that the preliminary results are reasonably encouraging, so far.

I am fortunate to have some awesome friends who looked after me when I was in hospital, who have helped me through this illness and been there to talk to. I don’t know how many of them read this blog. But, hey friends. You know who you are. Thankyou.

I also want to say thankyou to all the people who keep checking this blog to see what I’m writing. It is comforting to see that although I haven’t been able to write much recently, you are still popping by.

Unfortunately though, for the moment this blog is on vacation, hopefully to resume normal service next month, depending on what the doctors find.

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For everyone else though, it’s Chinese new year. Rather, it’s about to be Chinese new year. There are a few more hours of pig year left; then the year of the rat will begin.

I quite liked the year of the pig. Apart from the bad luck at the end, most of the year went well; I made some new friends; I saw new things; I learned new stuff; and life was… well… not bad. Quite good, actually. My parents continue to enjoy the start of their happy retirement. My brother is still happily married. Some of my friends have new children, and some have children on the way. Life goes on.

Outside, there are firecrackers going off everywhere, even out close to the hills and countryside of Taoyuan. Fireworks are flying into the air and coming disturbingly close to my bedroom window. I had a direct hit against the window last year. This year has been a little less terrifying, but we haven’t yet reached the main event yet. I expect I won’t be getting too much quality sleep though.

Happy Chinese new year, everyone. I hope the year of the rat is lucky for all of us, and I hope I can resume normal service and start writing about Taoyuan and life in Taiwan again, soon.

Gong hsi fa tsai!

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(picture via Spring’s Greetings)