When you stand on top of the 101 tower, endless rows of tin-roofed low lying houses might catch your eye. Apart from being an eye-sore to Taipei residents, these houses are also unsafe because they are susceptible to earthquakes.
There are a few houses on Minquan Road that have banners hanging across them saying something like “政府搶人民的財產” or “The government has stolen the citizen’s property.” Some of the banners have blown away or been knocked down by the time I took the photo, but you can see that someone is not happy about their house getting torn down. Maybe 90% of their neighbors wanted to tear it down, but perhaps the family on the first floor didn't want to because their entire livelihood rested on the street level scooter shop.
I’m going to compare this situation to America. Where I’m from in suburban America, we don't demolish houses very often; we keep renovating old ones over and over. That’s possible to do in Taiwan, however no one wants to because there is way more money to be made by tearing down your 5 storey house and building in 40 stories high. Also, there is a shortage of land, so builders have not but to tear down old properties.
Does Taipei Need to do This?
Yes. There are simply too many old houses in Taipei and New Taipei. Currently, there are 540,000 households over 30 years old in Taipei City, 620,000 in New Taipei, and 3,600,000 in all of Taiwan. This is a big deal because before the 921 earthquake in 1999, building regulations were not as strict. So we can assume that most if not all of these houses violate current building codes, posing a hazard to Taiwan’s populace.
What Does it Take to Re-Build?
The whole process to demolish or renovate an old house takes at least 4 and a half years total. Successful cases for this are few and far between, because all residents have to hold a meeting for every single dispute or complaint, and no one has time for that. Taking into account everyone's problems, their businesses, their transportation, and their family situation is very hard. Also there are many legal problems along the way.
The laws of the city and civil laws contradict each other right now concerning housing property rights and when one can demolish a house; if 99% of residents agree to tear down a house, which fulfills the city requirement, they may still get stopped in the end by one person because of civil property law. Case and point: In Yongchun, Xinyi district, one case went on for over 15 years. One of the tenants wanted to renovate his house instead of tear it down, and two other people had their homes taken demolished without their permission. In the end they sued the government and won, and so the whole case has to start over again.
Here is a news article for more details of the Yongchun case: http://www.taipeitimes.com/News/front/archives/2017/08/04/2003675878
What is the Best Solution?
There are a few new laws that should speed things up. One new law that has yet to take effect is for buildings built over 39 years ago; these will be expedited. There are also tons of tax breaks that go along with these.
The most effective law so far seems to be the 100% agreement rule. If 100% of residents agree to tear down the property, everything will go faster and smoother. But how do you convince all 100%? By hiring consultants to listen to and resolve every concern, and explain everything to everyone so there is no doubts about anything. This is the best and most feasible solution at the moment.
Does Renovation Make Money?
It’s hard to know how much money one can make from re-building, as part of the profits will be given to builders and in paid as loan interest to the bank; in the end all owners get a house, builders get some of the new houses, and the bank gets some houses too. If the constriction company decides to leave the project, everyone has to renegotiate a new contract which will add to costs and add time.
Currently Taipei and New Taipei are offering massive subsidies to re-build. In total, New Taipei is offering 6.3 million NT per household and Taipei is offering 5.5 million (This stipend is to help cover demolition and building costs as well as a money for green buildings). But because of the new real estate property tax, real estate profits will become part of one’s personal income (which can be taxed up to 45%), so tax has become super high. This has caused housing prices to fall lately, and so many people are stopping re-builds and contracts until the market gets better.
There is a choice to just renovate, but there is little incentive to do so as there is little profit margin.
What Are the Tax Implications?
There a few taxes involved: first there is a stamp tax when the house is sold that the seller pays. Also the seller has to pay income tax on the profits and land. Also there is a yearly property holding tax which is not that big. The biggest taxes are going to be the house and land profit taxes.
House taxes and land taxes are divided into 2 systems: if you bought a house before Jan 1 2016 it is part of the old system, if after then it is part of the new system. The tax calculation is kind of complicated, but basically the old system incurred less tax because land tax was not deemed part of personal income, however in the new system you have to include the profits in your personal income in addition to a land tax. As Taiwan's personal income tax can get up to 45%, this tax is significantly higher.
However, for this re-build situation in which people bought the land and house before 2016, then tore it down and built a new house or houses, the land can be subject to the old system, while the new house is taxed according to the new system, making it a very tax friendly venture. Adding that in the new system building costs can be tax exempt, re-building is a very tax friendly approach.
Building new houses with land purchased after 2016 and reselling will incur significantly more taxes because land profits are considered as personal income. This new tax is the main reason why the housing market is slowing down
Is This Good for Everyone?
Yes. This is good for the community because all new building are required to provide public services such as a library or kindergarten. This is a problem that every Taipei resident needs to help solve. Everyone should support this, because at the end of the day this is a problem for the competitiveness and safety of the whole country.
We are US Expats that have extensive experience living and working in Taiwan. In our day, we had to learn many things about Taiwan the hard way. But we have come to learn that Taiwan is one of the best places in the world for Foreigners to live. Our blog does not represent the opinions of every foreigner in Taiwan. We are just trying to help others learn more about this beautiful country.