Land cost takes over property prices and income growth

Sep 10, 2013 - PropertyGuru.com.sg

 

Land costs in Singapore have been rising faster than property prices and household income over the last few years, according to DTZ.

Based on sales of sites from the Government Land Sales (GLS) programme’s confirmed and reserve lists that were awarded between 2008 to 1H2103, the average land cost increased at a compounded annual growth rate (CAGR) of 18.2 percent.

In comparison, the CAGR of non-landed residential properties in the URA private property price index stood at 5.2 percent, while the monthly household income has a CAGR of up to 6.2 percent over the same period. Notably, average land cost take up 62 percent of the total development cost for non-landed GLS sites in1H3013, up from 42 percent in 2008.

Despite the increase, non-landed residential projects remain profitable for developers as they were “able to pass the higher land cost to buyers.” However, the report noted that a continued increase in land cost could push selling prices “even higher and beyond fundamentals.”

“It could also affect the profit margins of developers considering the rising financing cost and labour costs,” it said.

Meanwhile, a narrow margin between the top three bids for non-landed residential sites on the GLS reserve list reflects the level of competition among developers. Due to the widened gap between top three bid prices and the trigger price, developers paid double the trigger price, on average, to secure the sites.

Lee Lay Keng, Head of Singapore Research at DTZ said: “The need of developers to replenish their land bank, coupled with their strategic bidding practices and new players joining the market, may continue to see developers bidding aggressively.”

“However, in light of market cooling measures, the introduction of the Total Debt Servicing Ratio (TDSR) framework and the possibility of a rise in interest rate going forward, the assumption that the higher land cost can be supported by higher project selling prices has to be re-examined… A disciplined and guarded approach in land bidding practices is needed to ensure sustainable growth in the property market.”

Nikki De Guzman, Junior Journalist at PropertyGuru, edited this story. To contact her about this or other stories email [e-mail]