Tuesday, March 15, 2011

Get Smart: Build your house on the rock
Don't buy real estate in an earthquake zone

By Stephen A. Nelson

After I made my first post (in 2005) about Why I Never Invested in Taiwan Real Estate, I got this rebuttal: 

"I'm not sure whether your main reason for not buying is valid, or at least for me it isn't. There are many risks that we all take on a daily basis... The chances of the next big earthquake occurring with the epicentre located where you live and your apartment falling down, all in your life-time, are very slight indeed."

So here I re-present my reply, even as the Japanese calculate the odds against a triple disaster - earthquake, tsunami and nuclear meltdown - all happening at the same place at the same time:
With all due respect, ["very slight indeed"] is what the people in Puli and Taichung [cities closest to the epicentre] said right before the 921 Earthquake in 1999.

But, as I noted, earthquakes are not your only worry. Typhoons and floods happen every year.

The city of Taipei is built on a mud basin.

And as Typhoon Nari showed, anywhere - including the entire city - can be a flood zone.

As for the non-tangible reasons for buying a house (sense of accomplishment, pride of ownership, et cetera): Been there, done that, bought the T-shirt.

A lot of those non-tangible reasons are not really sound investment principles but things that agents and others tell you to make you feel better about something that is not always a sound financial move.

Yes it feels great to "own your own home." A man's home is his castle. But it is not always a wise investment.

It's like buying life insurance: If you are doing it for someone else, that's great and there are many non-logical reasons you may wish to do so - looking after your family, protecting yourself in case of severe injury, et cetera.

But if you are buying life insurance as a financial investment, there are better ways to get a safe investment and a good return on your money.

In short, I'll continue to rent, claim my income tax deduction, and store up my treasure somewhere else.

Taipei has it's own triple risks - besides being a flood zone.
  • Taipei 101 (formerly world's tallest skyscaper) is built right on an active fault - and building the tower likely destabilized it.
  • The volcanoes of Yangmingshan (mountains at the northern edge of Taipei) are dormant but not dead.
  • There are two nuclear plants near Taipei, just on the far side of Yangmingshan.

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