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EDITORIAL: Law finally takes on speculators

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The legislature last week passed amendments to the Equalization of Land Rights Act (平均地權條例) aimed at curbing speculation in the presale property market and establishing heavy fines for market manipulators. The amendments, which now go to President Tsai Ing-wen (蔡英文) to be signed into law, seek to close loopholes and make housing more affordable.

Reactions to the amendments have been mixed, with some experts warning that the changes would have a negative effect on the real-estate market this year, while others said it was an important milestone in reeling in soaring housing prices and a step toward housing justice.

The amendments include a conditional ban on the resale or transfer of “purchase agreements” — locally known as “red slips,” which function as receipts of payments for presale homes and include an agreed-upon price. They also include stiffer penalties for market manipulation and speculation by spreading false information, and mandatory disclosure of contract termination for presale housing within a month.

One of the revisions prohibits the resale or transfer of properties within five years of purchase by a “private legal person” — including a private organization or a nonprofit group — along with a permission system for such entities to purchase properties. A reward mechanism for whistle-blowers to report fraud or any other illegal housing transactions is to be created.

Presale homes are a convenient way for first-time buyers or investors to enter the housing market. Some people wary of a potential bear market have argued that the government could levy taxes on the transfer or resale of purchase agreements for presale homes instead of imposing restrictions. The problem is that transfer prices for presale homes are not transparent, because they are not subject to real-price registration mechanisms, making it difficult under current regulations to levy transaction taxes in the presale housing market.

The reason presale homes are a focus for first-time home buyers or investors is that they require low down payments, which creates a lower investment cost for property speculators. As a result, the returns for speculators could be lucrative during an uptrend, as property prices increase during the construction phase. It is also a gamble, as the market could unexpectedly swing the other way.

Under the amendments, people who try to transfer or resell purchase agreements to a third party other than their spouse or a first or second-degree relative face fines of NT$500,000 to NT$3 million (US$16,454 to US$98,726), with the penalty also applying to realtors who help facilitate the transactions. People who try to influence presale prices, create a false perception of hot sales or spread false information that leads to market panic could be fined NT$1 million to NT$50 million, which can be repeated for multiple offenses.

These are long overdue changes, but very welcome as the government finally acts to raise the threshold for speculators, increasing their investment costs and price risks. However, Acting Minister of the Interior Hua Ching-chun (花敬群) last week said the amendments are not retroactive — meaning that presale housing contracts signed before the amendments become law are not subject to the more restrictive measures. If the rules only apply to new transactions, it is unclear whether home buyers looking forward to cheaper homes following the revisions could find reasonable deals in the short term.

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