Preface

The integration of real estate and land taxes in Taiwan has created an opportunity for property owners to benefit from lower or even tax-free sales based on the ownership duration. However, the introduction of the seventh wave of credit restrictions late last year disrupted many sellers' plans. This article will delve into the aftermath of these credit controls, the increasing proportion of tax-exempt cases, and the prevalent 20% tax rate scenario in the first quarter of this year.

Lazy bag

The latest data reveal that 20% tax rate cases, particularly those owned for 5-10 years, dominate the statistics, making up 42.3% of real estate transactions this quarter. Meanwhile, tax-exempt cases have also risen to 22.1%, showcasing a growing trend towards longer ownership to optimize tax benefits.

Main Body

The recent tightening of credit restrictions profoundly impacted the Taiwanese real estate market's dynamics. Property owners were previously incentivized to hold onto their properties longer to enjoy favorable tax rates. After the seventh wave of credit restrictions, many sellers found their plans interrupted, but this also led to a re-evaluation of ownership strategies.

With the current focus on discouraging speculative property transactions, the government has steered the market towards long-term holding rather than short-term trades. Data from the Ministry of Finance indicate that the 20% tax rate, applicable for non-primary residences held for 5-10 years, was the most prevalent in the first quarter, accounting for a significant 42.3% of transactions. This constitutes a 1.5 percentage point increase from the previous quarter.

The implementation of credit restrictions has resulted in an uptick in tax-exempt transactions, now representing 22.1% of all cases. Notably, this increase is fueled by two major factors: the 'owner-occupied exemption' and transactions incurring a loss offsetting taxable income. Homes occupied for over six years can sell for up to NT$4 million tax-free, with any excess taxed at a reduced rate of 10%.

Meanwhile, with the market curbing price inflation post-credit restrictions, profits surpassing the NT$4 million exemption threshold are decreasing. Also, the market's slowing pace has induced more owners to sell at a loss, leveraging the tax-exempt status reserved for loss-incurring sales.

Looking ahead, so long as the central bank maintains its credit controls, the real estate market is likely to remain cautious, impacting both volume and profitability. The share of tax-exempt transactions is expected to continue its ascent.

Short-term transactions subject to a 45% tax rate have declined from 15.7% in the fourth quarter of 2024 to 13.8% currently. Such a reduction underscores the challenges of rapid resales amid extended sales and loan processing times.

The overall market now favors a 'necessity-driven' approach, with 'long-term investment' becoming the norm as the cornerstone of property transactions. Notably, the 20% tax rate covers properties held for five years but under ten years, whereas properties held for two to five years are taxed at 35%, a stark 15% differential encouraging longer holds and enhancing profit retention.

Transactions within two years, taxed at 45%, remain a minority, reflecting a stark decrease since the seventh credit restriction was enacted. The de-emphasized speculative trade aligns the market with governmental policies aimed at limiting speculative excesses.

Key Insights Table