Few would dispute that it is too expensive to purchase a house in Taiwan nowadays. In urban areas in particular, average housing prices are incredibly high.
Some blame construction companies and property developers for profiteering and artificially increasing housing prices. The truth is that there are many other factors, most notably a variety of extra expenses that make the cost of building much higher than estimated.
Administrative disruptions, political risks, time wasting and management costs all lead to much higher prices. A scarcity of land, shortage of construction workers and rising prices of raw materials have also kept housing prices high. Every house is built on a piece of land, and land prices always increase earlier and faster than housing prices.
Over the past two years, land prices and construction fees have increased dramatically. Taking these costs into account, construction companies have to increase the price of a house by 30 percent. Construction firms and property developers have to pay for their operating and sales fees, as well as taxes. Eventually, they are left with a net profit of about 10 percent.
If a project is scheduled to be completed within four years, the profit it can make is not necessarily huge. The government has been encouraged to implement more measures to bring down housing prices, and so construction firms and property developers have to take operational risks more seriously than before.
There are several ways to lower housing prices, but to intervene in construction companies’ business is not an effective method. Some say that regulating the companies would mitigate housing price hikes.
However, construction companies might collapse first if their net profit continues to decrease. The government should come up with a more realistic solution.
Most young people cannot afford to buy a house, which must be frustrating for them.
However, discouraging everyone from buying a house is unlikely to lower housing prices. If nobody wanted to buy a house, construction companies and property developers would stop undertaking new projects. With fewer houses available, prices would become even higher.
The only way to bring down housing prices is to increase supply. A brief suppression of consumer demand would lead to a rebound after only a short period.
Renovating old buildings is not common, hence these projects have not become an effective way to keep housing prices in check. The owners of old buildings wish to receive more in return. Also, due to the costs and limited amount of bulk reward, construction companies would increase the prices for their own sake. For them, construction costs and net profit should be proportional.
To address this, the margins for renovating old buildings must be increased, and more renovation projects arranged. The government should establish congenial relationships with construction companies and property developers. Some policies should be revised to facilitate reconstruction projects. Also, if workers’ incomes can be increased, they would be more interested in buying a house.
The government should consider this when stipulating measures.
William Hu is a property developer, and honorary chairman of the associations for the reconstruction and development of old buildings in New Taipei City.
Translated by Emma Liu
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