Taipei US$1.3 billion retail building sale a test of foreign investor interest

The forthcoming sale of a 12-storey retail complex in Taipei will be a test of whether foreign property investors have enough faith in the potential of Taiwan’s real estate market to brave its high capital gains taxes and sluggish economy.

Living Mall, which has a gross floor area of 2.2 million square feet and nearly a thousand shops and is a short ride to the Xinyi business district, is being offered for sale with an indicative price of HK$10 billion (US$1.3 billion). It is targeted at investors in Singapore, Hong Kong and Shanghai, according to market watchers.

While the L-shaped building, constructed in 2001, has potential for redevelopment, it could be a hard sell given the tax implications plus the fact that the island’s economy has been stuck in low gear, with growth lingering in the low single digits since 2011 and projected to be at 2.42 per cent this year.

“When investing in Taipei, you need to understand the tax treatment, low stock levels, and the low yields, both of which are facts of life,” said Carrie Law, chief executive of property portal Juwai.com. “It is very difficult to make an investment case when you face 35 per cent capital gains tax on any acquisition,” she said.

“We don’t see a significant role for mainland China or Hong Kong Chinese investors in Taipei at the moment,” said Law.

According to Taiwan’s tax code, if a foreign company were to sell a property held for more than a year, it would have to pay 35 per cent capital gains tax, and 45 per cent if it is resold within a year.

In 2017, sales of commercial property investment in Taiwan totalled NT$67.1 billion (US$2.19 billion). If Living Mall were to sell for HK$10 billion, it will be equivalent to 60 per cent of 2017’s total investment property market in Taiwan.

Other analysts have expressed caution over the island’s commercial property market, with accounting giant PwC and consultancy Urban Land Institute suggesting investors sell office, retail and industrial properties in the capital Taipei, according to their “Emerging Trends in Real Estate Asia-Pacific 2018” report.

That said, commercial property investment in Taiwan started to pick up in the second quarter of this year, with the transaction volume rising to NT$30.6 billion, nearly tripling year on year, because of a few big-ticket transactions and decentralisation of businesses, according to a report by Cushman & Wakefield.

The property broker also noted that average grade A office rent in Taipei’s Xinyi district stands at HK$21.90 per square foot, one-sixth of the HK$137 per square foot in Hong Kong’s Central, Admiralty and Wan Chai area.

Cushman and Wakefield, which is leading the sale of Living Mall, was upbeat on the prospects for the Taiwanese economy, and said the property could be a good buy, noting that it will be offered for sale with freehold while most properties in Taipei are leasehold, usually of between 50 and 70 years.

“The property has the potential to redevelop into a grade A office or a five-star hotel and shopping centre which could enhance its investment value,” said Eagle Lai, head of capital markets for Taiwan at the broker. The site also has potential for residential use after government approval, he said.

Hong Kong property investment fund Link Reit, which attended the introductory briefing of the tender, declined to comment on whether it was interested in buying the site.