Saturday, March 19, 2011

Before the bubble bursts

l  Taiwan's Executive Yuan (EY), or the Cabinet, approved a draft bill in early March that would introduce a selective sales tax targeting expensive purchases and speculative sales of real estate.

l  Though the draft law still needs to be approved by the Legislative Yuan (LY), this was a critical step that the Kuomintang (KMT) administration hopes will: (1) help cool the overheated property market, (2) narrow the widening wealth gap, and (3) make affordable housing more than just a campaign slogan but a reality, especially for those 40 and under.

l  Although administration officials believed the proposed “luxury tax” was consistent with the ability-to-pay principle and would not affect people who engage in ordinary transactions, there has already been a huge impact on the automobile and real estate markets throughout the island.

l  Most expect that during deliberations in the LY, there could be some amendments made to “water down” the bill’s intended impact. However, with over 60% of the respondents in recent surveys that expressed support for the new tax, the bill is almost certain to pass the LY and become effective on July 1.

l  Undoubtedly the “luxury tax” is a significant step for the KMT administration in addressing wealth inequality in Taiwan. Besides, with escalating housing prices often being the leading public complaint, the bill was drafted to curb further property speculation and return Taiwan's housing prices to more reasonable levels.

l  Since the news of such a tax was first released in early March, there has already been a visible impact on the real estate market, particularly in New Taipei and Taichung Cities. Many expect the wave of “sell-off” to reach its peak by mid-May, which would allow plenty of time to complete the property transaction before the “luxury tax” kicks in on July 1.

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