Taiwan Mortgage Market

Introduction

In the past ten years, home prices in Taiwan have been consistently rising. As seen in Figure 1, prices in major cities such as Taipei have nearly tripled. Decreasing bond yields and low mortgage rates have encouraged people to invest heavily into real estate, driving prices steeply upwards. As a result, this rich man’s game has made it nearly impossible for a young Taiwanese to purchase and own a property.

The price trend has given a rise to various financing options in Taiwan to aid home buying. Although both local and international citizens can own property in Taiwan, most home financing options are catered towards the local population.

Purchasing Property in Taiwan

Property purchase in Taiwan is available to both Taiwanese citizens and foreigners. Foreign buyers are allowed to purchase Taiwanese real estate if they have received government approval by confirming the property purchase agreement between the buyer’s home country and Taiwan, as well as registering with the Ministry of Economic Affairs. Foreign buyers are also restricted to purchasing land for the use of residences, business sites, office buildings, shops, factories, churches, hospitals, schools for children of foreigners, diplomatic and counselor building, building of organizations for the promotion of public welfare, and cemeteries.

When purchasing a property in Taiwan, the homebuyer must register with the Land Registration Office of where the land is located to record the change in ownership of the property. The registration process with the Land Registration Office takes from 7 to 14 business days to process and will incur a Registration Fee of 0.1% of the official value of the real property. In addition to the registration fee, property buyers are also responsible for the notary fee that ranges from 0.01% to 0.1% of the official value of the real property, and a legal fee that ranges from 0.05% to 1% of the official real property value. Stamp duty of 0.1% on the contract value is also levied on the sale, exchange, donation, or subdivision of real property. For building purchases, a Deed Tax of 6% of the building value is also levied on the transfer of title of the building. In many cases, land owners and purchases use a real estate agent to help facilitate the deal. During such scenarios, the maximum payment an agent can receive from the buyer and the seller combined is 6% of the transacted price. The seller typically pays the bulk of the fee - at 3% to 4% while the buyer pays 1% to 2% of the transacted price.

Financing Options

There are five main types of options to finance property purchases in Taiwan: Fixed Rate Mortgage, Adjustable Rate mortgage, Revolving Mortgage, Offset Mortgage, and Government Subsidies.

Fixed Rate Mortgage

The conventional home loan is structured as a standard installment loan with very little flexibility. Depending on the institution the loan is taken out from, the bank may require you to make payments monthly or fortnightly. Choosing to pay every two weeks will result in smaller payments each time, and provide more flexibility. However, many banks only offer the monthly payment option. A conventional installment loan will typically have equal payments each period, allowing you to easily budget around the payments. Each payment consists of a part of the principal amount and the interest on the loan, allowing you to pay back the sum of the loan over the duration of the loan term. While early repayments are usually available, banks often charge an early repayment penalty

Adjustable Rate Mortgage

The Adjustable Rate Mortgage is the more common option in Taiwan and is very similar to the fixed rate mortgage installment loan but differ in interest rates. Adjustable rate mortgages have interest rates that fluctuate with the current market trend.  The frequency of rate adjustments is determined by the lending bank. Most banks adjust their rates monthly, biannually or annually and will notify you of your new mortgage rate in advance. Adjustable rate mortgages are usually advantageous when the market landscape features falling interest rates. However, as the rate does adjust according to the market landscape, adjustable rate mortgages that carry over longer terms may expose you to the market uncertainty far in the future.

Revolving Mortgage

Revolving Mortgages are similar to credit cards; however your credit limit is determined by the market value of your property. As you make payments towards the mortgage and your outstanding balance, you will still be able to borrow money up to the amount of the initial authorized loan amount. The interest on such loans is calculated from the used portion of the credit line; therefore if you reduce the outstanding balance early on, you may also decrease your interest on the loan. This highly flexible option is attractive for those with variable income as you can typically make payments at your own pace.

Offset Mortgage

Offset mortgage is a loan with its interest calculated based on the mortgage balance less the balance in your savings account at the same financial institution. This mortgage type allows you to reduce the amount of interest you would have to pay if you have spare cash to deposit into your savings account. As the balance in your savings account is not directly paying back the mortgage, you will still have flexibility to access the money in your savings account. Although offset mortgages usually have a higher interest rate than the conventional types of mortgages, this option can still reduce your interest payments if you regularly deposit money into your savings account.

Government Subsidies

As the housing prices are quite high in Taiwan and becoming unaffordable for the younger generation, the Taiwanese government has been offering subsidy packages for citizens who qualify. These packages are geared towards helping young or low income citizens obtain residential properties by offering lower interest rates and lower initial payments. The Taiwanese government currently promoting rent subsidies for 25,000 families, loan subsidies for 5,000 families and repair bill subsidies for 3,000 families.

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