The tornado will hit our houses (but from inside)

A typical Taiwanese apartment for a 2-kid family carries a renting price of 20,000NT (US700$). The same house, if sold on the market, fetches a selling price of 20,000,000NT (US700,000$). That is a markup of 1,000%. Or think this way: If you pay the rent for 80 years, you can recoup your investment. You have a nice “heritage” transferred along your sons and grandsons and great-grandsons.

When I walk by the numerous real estate agents in Taipei and watch the displayed ads, I not only see those ridiculous numbers, but also the numbers INCREASING. I am tempted to believe in the world of The Matrix. Maybe someone out there programming our entire universe has gotten lazy and slipped some self-propagating bugs into the green screen filled with streaming Katakana characters. Or assuming that we are living in a real world, the current situation has a real name: bubble.

Every Taiwanese person I know wants to buy a house. When I ask them about the real estate, the first (and only) phrase that comes out is “It is too expensive,” followed by “to buy.” Owning a house is engraved in our Asian soul as deeply as our habit to eat rice—and to find a shortcut. And in this case, the shortcut is to rent. I suspect that buying a house (for oneself) is the “making face” version of our real estate dream, and renting is the “practical” version of our day-to-day life here. That must be why the renting price is suspiciously low compared to the buying price, and has kept low for as long as I remember (8 years).

Then what exactly is behind the soaring housing prices? I am afraid it is investment, or worse, speculation. A friend of mine told me of his friend’s idea to renovate a newly purchased apartment and rent it to expatriate worker families of European companies (who typically shell out 3 times as much dough as Taiwanese counterparts). This way, the 80-year waiting period might be reduced to 25 years. (Still an awfully long way, though). The apartment is not where he wants to live in. It is a magic wand that sprinkles extra income every time he checks into his savings account.

Dream on, but as a Japanese I have long been awake (or sober)—for 23 years, to be exact. What happened in Japan is happening in Taiwan. A long period of surging housing prices suddenly comes to an end when the young population stops growing. Contrary to what the politicians or economists say, it is all about demographics. When there are no more young people to buy a house, everything starts to go downhill. And the downward slope, unlike the steep yet automatic climb, is shallow and painful all along the way. When will the demographic shock hit Taiwan? 2014.

During the first year of post-bubble burst, everybody talks about “the end of an era” but keeps the same lifestyle, thinking that things will return to norm in a year or so. People only start to realize the depth and seriousness of what is going on (the price and the economy will never be the same) after several years, and by that time, the fundamentals of the  society and economy will have been rewritten completely. People will have no choice but to adjust to the new hard reality.

I have talked about this upcoming housing and economy crisis with my Taiwanese friends, and their responses were unanimously commentator-esque. Yes, it will be serious (but it won’t affect my life so seriously). I listen and nod, but keep thinking that they probably don’t get it, which is understandable. Taiwan never had the experience of falling housing prices and its aftershock.

When I walk along the street, two of the most ubiquitous premises (except for 7-11) are banks and real estate agents. To put it mildly, they are outdated business models. We no longer need to see an agent face to face to either move money or buy a house. When the bubble pops, it will be the death blow to those antiquated business models. The employees in those sectors will be the first ones to let go. Then by losing tenants, the surrounding commercial zones will start to modify, or if what happened in Japan applies to Taiwan, shrink. The whole chain reaction will continue.

I keep thinking: How long will this calm before the storm last?