CHAPTER 5 CONCLUSIONS AND DISCUSSION
5.2 S UGGESTIONS
In recent years, to inhibit real estate bubbles, the government gradually promoted luxury tax, actual price registration, the increase of house tax, and the aggregate tax on house and land, aiming to reduce the demand for investment, to promote transparent information on real estates, increase the cost of ownership of real estates, and collect taxes on capital gains in order to realize the land value increment to the public. Although relevant policies reduced the transaction of real estates, their price remained unchanged and even slightly increased. From market phenomena can be seen these policies " loud thunder but small raindrops ", it is still powerless to inhibit house prices, which also verified the inflexibility of downward prices of real estates. The empirical results showed that the lag period of house price in Taiwan had a significant negative influence on consumer spending, and consumption was the most important factor (60%) in GDP. Hence, the influence of rising house prices is importance to economic growth.
As a result, to prevent consumption growth from decreasing continuously, which further led to economic depression, even real estate bubbles resulting in another financial crisis happened in Japan, the study provided recommendations as below based on the empirical results:
1. Financial Policies
Decline the interest rate through the easing monetary policy had no significant influence on consumption; instead, it caused the house price to continuously increase and endangered financial stability, which led to the uneven income distribution and influenced consumption.
Although Central Bank promoted the highest loan-to-value of 50% on housing loan of the third house and more for single borrowers across Taiwan, the overall policy should focus on the reduction of money supply in the real estate market. Currently, the total amount of loans of housing purchased in Taiwan accounted for 37% of GDP. Central Bank should implement
the money policy carefully to reduce loans of non-residential housing (applying to the second house of the family and more) of the lending rate, in case of money supply continued inflow in the real estate market, which had already been excess supply.
2. Fiscal Policies
The study showed that Weighted Stock Index (rate of change) had a significant positive influence on consumption (rate of change). Comparing the nature of stock market with the nature of real estate market and according to empirical results, there is a more significant wealth effect in the stock price than in the house price, which should help form a virtuous cycle of increase in civic consumption, corporate investment and employment as well as benefit the public, enterprises and economy. It would substantially contribute to economic growth, so the government should encourage people to bring money in the industrial investment and the stock market from the real estate market. To reach the continue development of the domestic economy.
3. Economic Policies
Under the zero growth of real income, the increase of CPI would make the consumption attitude of consumers turn conservative (sidelines) and endanger consumption rate. As a result, the government should first focus on growth of salary and overcome the stagnant dilemma of salary in order to reduce Price-to-Income (PTI) Ratio and the mortgage burden rate and bring rate of changes of consumption back to positive growth and further increase economic growth.
Moreover, the increase of house price could significantly forecast the reduction of consumption. Thus, in addition to promoting growth of salary, policies should bring the house price back to reasonable and affordable level at the same time. On the one hand, the government should continue increasing the cost of ownership (property tax) of non-owner occupied houses; on the other hand, the government should implement taxation based on
actual prices, inhibit speculative demands from both low interest rate and taxation. For long-term aim should be release vacant houses to self-occupied owners in Taiwan, and achieve the justice of residence and taxation and sustainable growth of the economy.
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