The Protection of Property Rights through Compensation- Observations from Taiwan

Abstract

Literature suggests three compensation principles for property expropriation ­ full, lump sum and market value. While it is difficult to judge which principle is superior, there is no doubt that everyone should be treated equally. Owners of property in Taiwan are required through valuation practices rather than by legislation to give up part of their property value in the public interest. Compensation to the expropriated property owners is ollectively paid by the citizens, usually through taxation, and all property owners are equally liable to lose property. The tradeoff between tax burden and excessive sacrifice finds a balance at market value.Taiwan applies the same valuation methodology to both property taxation assessment and expropriation compensation. The taxbased value has proved to be significantly below the market value. However, the gap between the assessed and market value is narrowed by a deliberate increase in the announced current land value shortly before expropriation.This article presents a comparison of market value and compensation amount for a set of sample properties in Taiwan on the assumption that they were to be expropriated. Its main finding is that the gap between the two is not uniform among properties. That is to say, under the present ad hoc valuation rule, some properties tend to be overcompensated while some others are undercompensated relative to market value. The empirical analysis has uncovered two valuation issues related to compensation in Taiwan that warrant further investigation: (i) whether the ad hoc valuation rules plus the flexible additional compensation satisfactorily reflect the market value; and (ii) whether the difference between market value and the amount of compensation determined remains uniform among properties.