What the Taiwan election means for Asia-Pacific investment

One of the first to kick off a year of national elections in more than 40 countries around the world – affecting around 40 percent of the global population – Taiwan’s eighth direct presidential election on January 13 was closely monitored by the real estate market.

Lai Ching-te from the Democratic Progressive Party claimed victory with 40 percent of the total votes. DPP, which has now won three consecutive presidential elections, traditionally holds a more aggressive cross-strait policy, particularly regarding its de-facto independence. Meanwhile, the opposing parties Kuomintang and Taiwan People’s Party obtained 33.5 percent and 26.5 percent of the votes respectively. Despite winning the president’s seat, the DPP only won 51 seats in the parliament compared to the 52 seats and eight seats won by KMT and TPP, respectively.

Taiwan is often seen as a key point of contention in the relationship between the US and China, according to Henry Chin, global head of investor thought leadership and head of research, Asia Pacific, at broker CBRE.

While the US acknowledges the “one-China policy,” it maintains an unofficial relationship with Taiwan and advocates for democracy under the Taiwan Relations Act established in 1979. The Act also allows the US to sell weapons to Taiwan for self-defense purposes in the event of a potential invasion by China. China has always condemned US arms sales to Taiwan.

Although it is a relatively small market for both inbound and outbound real estate investment, Taiwan is known as the global epicenter for semiconductor manufacturing, producing the majority of the world’s semiconductors. Semiconductors have been another major source of hostility between the US and China as both superpowers strive for dominance in the industry.

“The impact [of the election] is less to do with the Taiwan market itself and rather what potential impact more assertive or aggressive actions by China and the US could have on sentiment toward the region and perceptions of risk,” said Alfredo Lobo, partner at capital advisory firm Hodes Weill & Associates.

Initial reaction

So far, the market is generally relieved that the election is over and that the initial responses from the US and China were fairly measured, according to both Lobo and Chin.

The immediate reactions from both countries were similar to those of previous Taiwan elections. The US sent an unofficial delegate to Taiwan post-election, but also emphasized that it does not support Taiwanese independence. Meanwhile, China responded by saying the US’s congratulatory statement “seriously violated US promises that it would only maintain cultural, economic and other non-official ties with Taiwan.”

Longer term, however, the market does not necessarily expect China to step up military pressure on Taiwan post-election. DPP’s loss of a parliamentary majority and win of less than half of the votes indicates its stronger independence stance does not represent mainstream views within Taiwan, according to Milan Khatri, managing director and head of research at Hong Kong-headquartered Phoenix Property Investors.

While DPP traditionally has maintained a frosty relationship with its cross-strait neighbor, KMT and TPP are more willing to establish friendly ties with Beijing. For example, the KMT candidate Hou Yu-ih sought to restart dialog with Beijing about expanding Taiwan and China’s trade relationship.

That said, Lai himself – who has drawn China’s ire in previous years for his remarks about Taiwan’s independence – struck a more moderate tone on Beijing before and after the election. In a speech following the DPP victory, the president-elect vowed “to maintain peace and stability in the Taiwan Strait” and pledged to act “in a manner that is balanced and that maintains the cross-strait status quo.”

Stronger home bias

However, industry sources noted it is still unclear whether tensions between China and the US will further escalate because of Taiwan, and that uncertainty weighs on market sentiment in the region.

“A big moving factor is how the result of the Taiwan election would potentially change the narratives with the US election that’s coming up between the Republican and Democratic candidates, like how they view China and how they talk about China. It could be something to watch down the road,” said an Asia-based senior executive at a US real estate investment firm.

The prospect of heightened political tension translates to greater risk with investing in the region, according to Lobo. “While many investors will continue to invest in Asia-Pacific for growth and diversification purposes, others may remain on the sidelines for longer. And in some instances, [investors may assess] a higher risk premium to investing in the region,” Lobo noted.

A volatile geopolitical environment may drive more investors to adopt a “home bias,” a trend that began during the covid-19 pandemic. Especially for US and European investors, they may need to see a higher return to justify their investments in the Asia-Pacific region compared to the growing opportunities from dislocation in their home markets, he added.

This trend is underscored by recent global investment volumes. For example, Canadian and Dutch investors invested 75 percent and 81 percent of their real estate portfolios, respectively, in their home markets in 2023, according to data provider MSCI. That represents a notable increase from their five-year averages of 65 percent and 70 percent, respectively.

“More instability in the region might mean that investors will continue to choose things closer to home,” Lobo explained.

Developed Asia markets to benefit

For investors that continue to invest in Asia-Pacific for diversification purposes, they will opt to invest in the region’s ex-China markets, according to the unnamed senior executive.

With Taiwan’s ruling party remaining in power, “it is unlikely that the relationship between China and Taiwan will improve anytime soon,” he noted. “It will continue to benefit the developed markets in Asia such as Japan and Korea.”

The intention for real estate investors to invest in Seoul, for example, rose to 59 percent in 2024 from a seven-year average of 45 percent, according to trade organization ANREV. Meanwhile, the intention to invest in China dropped significantly to 19 percent from a seven-year average of 40 percent.

“Overseas investment coming into China has already come down massively in the past few years and international investors will continue to shy away from the market for now. Even if the issues relating to Taiwan calm down, there is a broader concern investors have over [China’s] policy and regulation. These appear to change quite significantly on short notice and it could be detrimental to foreign investors,” said Khatri.

“While the latest election doesn’t seem to have a significant impact on the capital flow into China for now, the other concerns won’t go away very quickly either,” he added. However, Khatri pointed out that the concern over regulatory uncertainties also applied to other emerging markets.

For now, the potential threat from the Taiwan election on cross-strait stability has subsided. But the ongoing uncertainty over how Taiwan may exacerbate already strained US-China relations means the industry will be keeping a close eye on Taiwan in the months to come.