An elegant tree-lined path leads up a small hill in the northern outskirts of Taipei to the Glory Century, a luxurious estate overlooking a busy alleyway filled with small restaurants in old buildings.
The 14-storey apartment blocks seem oddly out of place, not only because of their opulence but because their many empty flats are a haven of calm in an otherwise busy area.
Yet despite its slightly ghostly appearance – the five-year-old estate is only 60 per cent occupied – Glory Century is, in fact, hot property. Brisk trade in its 80 to 200 sq m flats have driven up prices by 20 per cent in the past year, according to property agents.
While housing prices in Europe and the US are still recovering from the financial crisis, in Asia a flood of liquidity unleashed by low interest rates and government stimuli has ignited a property boom in many countries.
Property prices in Hong Kong, Seoul and Singapore have all risen sharply, leading officials to warn against the risks of a speculative bubble. Hong Kong luxury property prices, for example, are now a quarter above even pre-crisis levels thanks to an influx of wealthy mainland Chinese buyers.
Nowhere has the property boom been greeted with more enthusiasm and investors been more confident of a sustained rise than in Taiwan. While other markets have experienced boom-and-bust cycles, the island's property market has stagnated for nearly two decades because wealthy Taiwanese took much of their wealth abroad. Over the past 20 years there has been a net investment outflow of $240bn (€163bn, £148bn).
“The last time there was a rapid rise was when housing prices doubled between 1989 and 1990,” says Jason Shih, managing director of Herald Leader, a property consultant in Taipei. “Since then there has not been much change and the market fell to its lowest during the Sars epidemic in 2003.”
The situation began to change nearly two years ago when it became clear that Ma Ying-jeou would be elected president with a mandate to improve relations with China. Since then, prospects of a jolt to the economy from better cross-strait ties and losses on investments overseas during the financial crisis have led to Taiwan's first net inflow of funds since 1990. Luxury housing prices have risen about 20 per cent this year to record highs and are now two times their lowest point in 2003.
The influx of wealth came as Taiwan launched an aggressive stimulus package in the wake of the financial crisis, making cheap credit available. Taiwan's benchmark interest rate has been cut from 3.25 to 1.25 per cent since the financial crisis, and government-backed schemes brought out mortgages with annual interest rates as low as 1.37 per cent.
Billy Yen, Taiwan general manager of property consultancy DTZ, said: “The power of incoming liquidity is already overpowering any market fundamentals.” That is even before a potentially far larger wall of money – that of mainland Chinese investors – has arrived. Chinese buyers are still, with limited exceptions, prohibited from investing in Taiwan property.
“Assuming Taiwan follows Hong Kong's path [of economic integration with China] . . . there is still a lot of room to go,” said Mr Yen.
Whether there will be enough demand to sustain Taiwan's property boom rests on two pending agreements with China: a financial memorandum of understanding that will allow banks to set up branches across the Taiwan Strait, and an economic co-operation framework agreement that will pave the way for further liberalisation in trade and services.
