20120506 EDITORIAL: Dubious way of building profits

EDITORIAL: Dubious way of building profits

Last month, Taiwan hosted a regional prosecutors’ conference under the theme of “Combating Economic Crimes through Asset Recovery,” with the aim of helping local prosecutors facing serious white-collar crimes such as fraud, money-laundering and insider trading.

Then, on Thursday, the founder of contract electronics maker Inventec Corp, Yeh Kuo-yi (葉國一), was released on NT$5 million (US$171,100) bail after being questioned by prosecutors about his handling of a major real-estate project in a rezoning area close to the Chiang Kai-shek (蔣介石) Shihlin official residence in Taipei.

According to local media reports, prosecutors received a tip-off in 2009 that Yeh was allegedly using dummy accounts to seek reimbursement from his investment in the real-estate project. Prosecutors suspected that the tycoon could make a profit of between NT$400 million and NT$500 million once the rezoning project was complete. Prosecutors said that Yeh’s wife, their two sons and several other Inventec employees are also being investigated.

Yeh has denied any wrongdoing in his real-estate investments. However, observers have said that the latest investigation of the business tycoon — whose personal assets are estimated at more than NT$10 billion — highlights the government’s efforts to narrow the nation’s wealth gap and curb real-estate speculation. This all follows the introduction of a tax on luxury goods, services and property in June last year and a recent rare meeting between the central bank and nine major domestic banks on mortgage risk management.

However, Yeh’s alleged involvement in real-estate speculation has struck many as both amusing and odd: How could a dedicated technology veteran turn his focus to real-estate investment? Does he no longer pay attention to his core business? And most important of all, is Yeh alone in behaving like this?

The Yeh case may simply be the tip of the iceberg because, judging by the fact that many Taiwanese technology firms (especially those in the contract manufacturing business) are encountering a drop in prices alongside additional pressures on their bottom line, there may be more technology veterans like Yeh who have poured money into the fast-expanding, highly profitable property market.

Last week, the US’ CNBC financial news channel compiled a list of the 10 hottest real-estate markets in the world and Taiwan was listed as number six, with an average increase in house price values of 30 percent between 2006 and last year. CNBC’s figures were based on research by the London-based property consultancy Knight Frank LLP. The top five property performers on the list were China (110.9 percent), Hong Kong (93.7 percent), Israel (54.5 percent), Singapore (50.5 percent) and Colombia (39.4 percent).

If the current government investigation into real-estate speculation proves only temporary, and Taiwanese manufacturers continue to see profits falling, speculative money will return once again to the real-estate market sooner or later, and Yeh will not be the only one showing enthusiasm for property investment.

It is a sad thing to see the 71-year-old Yeh, who established Inventec in 1975 and helped Barry Lam (林百里) launch Quanta Computer Inc in 1988, being questioned by prosecutors for his alleged involvement in fraudulent real-estate investment. Even so, it should not be seen as an isolated incident, but should serve as a warning bell for the long-term development of Taiwan’s economy. With some tycoons increasingly speculating in real estate rather than investing in productive industries, property prices will not only be pushed higher, but fewer jobs will be generated, which will hamper the drive to narrow the nation’s wealth gap.