Property and stock markets worsen wealth gap and financial anxiety in Taiwan
The sudden surge in Taiwan’s stock market index along with inflows to ETFs have left officials and analysts concerned. This could signal a wider wealth gap once markets return to normal and greater home ownership woes for youths. Lianhe Zaobao journalist Chuang Hui Liang looks into the matter.
When I met a friend for a meal last month, she talked about how her son had just returned to Taiwan after finishing his masters’ degree in the US and bought a small apartment in Taipei city for NT$17 million (US$523,900).
He forks out nearly NT$60,000 every month for his housing loan, leaving little left from his salary. My friend lamented how it was nearly impossible for young people to buy a house in the Greater Taipei Area.
Risk of worsening wealth gap
For those of us born during the 1960s, we began life as working adults right when the Taiwanese economy was on the rise. We experienced first-hand the era of “abundant wealth”, and also lived through the impact of the dot-com bubble and the financial crisis. But as long as we worked hard for 20 to 30 years, those who owned homes are mostly able to lead a stable life today.
Yet the next generation is facing a situation whereby their salaries do not differ much from ours back then, but prices have risen exponentially. This is an era when buying a home is a tall order.
No matter how hard the younger generation works, their rewards might not be commensurate with their effort. Leading a steady and stable life is no longer an easy thing.
After the Spring Festival, spurred on by the artificial intelligence sector in the US and Taiwan Semiconductor Manufacturing Company (TSMC), the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) soared to a historic high past the 20,000-point mark in late March.
At that time, during a Legislative Yuan interpellation by opposition Kuomintang (KMT) legislator Ko Chih-en, Premier Chen Chien-jen countered and gave a smile as he asked Ko twice: “Are you unhappy that the TAIEX hit 20,000 points?”
Ko believed that the TAIEX at 20,000 points could mean an even greater wealth gap.
KMT legislator Lee Yen-hsiu raised the same question to the Minister of the Directorate General of Budget, Accounting and Statistics (DGBAS) Chu Tzer-ming, who replied, “Personally, I’m not happy at all, because I do not own shares.” This highlights the general feeling of those who do not own TSMC shares.
This meant that the wealthiest 20% in Taiwan held 60% of Taiwan’s total assets, while the bottom 20% was left with only 0.94% — a clear sign of the worsening wealth gap.
Rich getting richer
On 29 April, the DGBAS released a report on the distribution of household wealth for 2021. It showed that by the end of 2021, the average household wealth reached NT$16.38 million, with the top 20% of households possessing NT$51.33 million, while the bottom 20% of households had only NT$770,000. The wealth gap has skyrocketed from 16.8 times in 1991 to 66.9 times in 2021.
However, the DGBAS advised against comparing the two results as their methodologies differed greatly; the data from 1991 was obtained from a survey, while the 2021 report relied on big data.
Taiwan’s Gini coefficient stood at a mere 0.606, but the amount of wealth that the wealthiest 20% of Taiwan families owned went up from 49.71% to 62.68% of total wealth. This meant that the wealthiest 20% in Taiwan held 60% of Taiwan’s total assets, while the bottom 20% was left with only 0.94% — a clear sign of the worsening wealth gap.
... the average person has in recent years relied on seasonal and monthly passive exchange-traded funds (ETFs). This would equate to an additional NT$10,000 to NT$20,000 in monthly income if one holds enough ETFs.
Minister Chu also pointed out that the bottom 20% families have financial debt up to NT$4.05 million, which showed that low-income families have tried to use financial leverage to increase assets, but this only resulted in a greater increase of their debt burden.
Meanwhile, finance academics felt that low-income families borrow money to be able to get by, while high-income families borrow money to grow their wealth. Although the government had in recent years stepped up on social welfare to “alleviate poverty”, taxes on the rich who use their housing assets to expand their wealth as well as taxes on stock market capital gains were also more relaxed.
In late March, the Chinatrust Commercial Bank and the Boston Consulting Group released a wealth management report on ultra-high-net-worth clients in Taiwan, which showed that in 2023 there are around 110,000 clients in Taiwan with assets above NT$100 million, with total assets amounting to NT$32 trillion. Among this group, 7,000 clients owned assets above NT$1 billion, holding assets up to NT$15 trillion.
The report estimated that clients with assets above NT$100 million would grow to 137,000 by 2027, with total assets amounting to NT$46 trillion, while the number of clients with assets above NT$1 billion will rise to 8,000, with total assets amounting to NT$22 trillion. Each year their wealth increases by at least 10%, making them even more out of reach for the average person.
ETF frenzy
As bank interest rates have long been below 2%, the average person has in recent years relied on seasonal and monthly passive exchange-traded funds (ETFs). This would equate to an additional NT$10,000 to NT$20,000 in monthly income if one holds enough ETFs.
In late March and early April when TSMC stock was soaring, the UPAMC Taiwan High Dividend Momentum ETF and the Yuanta Taiwan Value High Dividend ETF — both of which pay monthly dividends — raised more than NT$220 billion in a mere couple of weeks.
Experts are concerned that the property and stock markets would only worsen the wealth gap, with some from the middle class now forced to participate in capitalistic games in a bid to ensure their assets would not shrink in value.
The frenzy of mortgaging properties and taking on loans in a bid to purchase these ETFs forced Taiwan’s Financial Supervisory Commission and the central bank to issue warnings. The central bank was said to have been shocked by this abundance of hot money, and as a result raised interest rates by 12.5 basis points in order to recoup capital.
Most people buy high-yield ETFs because they want gains similar to what one gets from fixed deposits, but this ETF wave was taken advantage of by foreign investors who were quick to dump their assets, causing the above two ETFs to fall below their issue price.
Experts also warned that ETFs, which should have provided stable long-term dividends, now have a high turnover ratio, with many passive funds investing in similar individual stocks. Given the high valuation of these stocks, investors should be especially cautious.
Light at end of tunnel?
Also, to help the young be able to afford a house, in August 2023 Taiwan’s government introduced a revised Preferential Housing Loans for the Youth, which raised the loan limit and the loan period to a maximum extension of 30 to 40 years; the relevant housing indexes also set a historic high.
Experts are concerned that the property and stock markets would only worsen the wealth gap, with some from the middle class now forced to participate in capitalistic games in a bid to ensure their assets would not shrink in value.
Once the stock market falls back down or if there is job instability, would a housing loan that lasts 30 to 40 years help the young start afresh, or hamper them for life?
This article was first published in Lianhe Zaobao as “台湾“繁花”？”.
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