For the past decade or so, the most active property-investment zones in the world have been top-tier cities in the United States and Europe. They have appealed to investors because of both the decent returns and their open and transparent market characteristics. Over 50% of the total real-estate investments in major EU cities came from cross-border capital inflows. Although Taiwan is a major financial center in the Asia Pacific, the average influx of foreign funds into its real-estate market over the past 20 years has been below 7%. Clearly considerable room exists for growth if the market conditions are right.
Real estate is often the main component of individual and family assets and investment. To protect citizens’ rights and interests, it is therefore crucial for the government to ensure a fair and justified transaction process and market. We recognize the efforts the Taiwan government has made in recent years to stabilize property values and improve market transparency. However, the Taiwan real estate market is still relatively less transparent and accessible to foreign investors than many developed countries worldwide. Hardly any foreign funds have invested in real estate in Taiwan in the past four years. Further government efforts are required to improve the fairness and transparency of the market.
Below, the Committee presents two suggestions in hopes of stimulating discussions with the relevant governmental agencies in order to further improve market conditions and help promote Taiwan as a thriving real estate investment destination.
Suggestion 1: Revise the Real Estate Appraiser Act to allow legal entities to provide valuation services.
In Taiwan, the real estate valuation business must be conducted either by accredited individuals or licensed partners without incorporation. The Committee urges the government to accelerate proposed amendments to the Real Estate Appraiser Act that would allow the incorporation of valuation service providers as legal entities. The suggestion is raised here for the third consecutive year, and is still under discussion with the Ministry of the Interior. The Committee urges the government to speed up the process and move this matter forward to benefit the overall real estate industry and help protect clients’ rights.
The proposed change in the rules would relieve the financial pressure on professionals, since valuers hired by an appraisal firm would have limited liability instead of carrying unlimited liability as a partner. Moreover, as valuation companies would be required to hold professional indemnity insurance, clients utilizing their services could feel confident that their interests are being protected.
Legal entities usually have a clearer business structure and adhere to a comprehensive code of conduct, which helps to ensure that a company meets its financial obligations. In addition, they are able to run the business more sustainably and are not affected by changes in senior management or partnership. Overall, the major benefits of allowing the incorporation of business entities in the valuation industry include:
a. Companies are covered by insurance, which will help relieve the burden of risk on valuers and therefore improve the recruitment of
b. Companies have better audit and compliance procedures, which will strengthen the credibility of valuation reports.
c. Companies are of larger scale, capable of conducting extensive market research and establishing databases.
Suggestion 2: Require banks to charter professional valuation professionals for transactions involving mortgage loans.
At present, domestic banks mainly rely on in-house valuation teams when reviewing mortgage applications, while foreign banks in Taiwan appoint a licensed appraiser to provide an independent opinion on the property value. The practice adopted by foreign banks ensures that they receive professional and objective advice on property conditions in line with global standards. On the other hand, undertaking valuation work internally may lead local banks to encounter problems such as conflicts of interest and bad debt.
The Committee continues urging the Financial Supervisory Commission to require banks, when extending credit on collateral, to hire an independent licensed valuer to produce an appraisal report that determines a current fair market value in order to prevent overestimation of property value and over-lending. In addition, banks should be instructed to draw up guidelines to evaluate appraisers’ performance and their accuracy. This step would help protect the interests of both banks and depositors.