Friday, July 29, 2011

Lower land prices offset by rising costs

BIDS by developers for suburban plots may be coming down somewhat but that does not mean that home prices at launches are certain to fall too, top executives of various property firms said yesterday.
Rising development costs - such as an expected jump in labour and construction costs - are challenges that developers are grappling with, they warned.

These cost factors might offset lower land prices, the developers added on the sidelines of a Real Estate Developers' Association of Singapore (Redas) seminar held at Orchard Hotel yesterday.

Frasers Centrepoint group chief executive Lim Ee Seng said developers do not look at land price alone when pricing their launches. Market expectations are the most important factor.

'If the market prices it at a certain level and you sell it way above, you cannot sell. But if you can sell it at a certain level, why would you deliberately want to underprice it?' he added.

But the lower break-even cost brought about by lower land prices gives developers the advantage of more flexibility and a buffer in case the market turns, he added.

However, Mr Lim emphasised that the fall in tender prices has not been significant yet.

Construction costs are expected to rise with strong building demand from the Housing Board, which plans to launch 25,000 new flats this year, more infrastructure works and similarly robust demand from the private sector.

Developers said that, coupled with the reduction in the number of foreign workers and higher material costs, overall costs are expected to spike further.

On the residential property market as a whole, however, Mr Wong Heang Fine, president of Redas and chief executive of CapitaLand Residential Singapore, expects a period of stability without the runaway prices seen in the past couple of years.

Still, while it is too early to call for a reversal of the various cooling measures introduced by the Government, it is clear that they have worked to remove the speculative froth from the market and stem the sharp rise in prices, he said.

'All the cooling measures that are in place presently; the position that we take is to let the dust settle (and to) let nature take its course... Singaporeans who own private properties make up less than 15 per cent of the total residential market in Singapore.

'Given this, the private residential market should be given the opportunity to independently adjust to achieve its demand and supply equilibrium.'

Home hunters are taking longer to decide on a purchase, which shows that sentiment has been affected. However, basic demand is still present. In fact, if healthy economic growth, low interest rates and ample funds are present, they will continue to fuel purchases, he noted.

City Developments group general manager Chia Ngiang Hong said that despite concerns of an impending oversupply, the government is able to tweak the six-monthly land sales programme according to market conditions.

'We are hopeful that along the way, if the market situation does change, the government will take that into consideration and proportion the sites between the confirmed and reserve list,' he added.

Confirmed list sites go on sale regardless of interest and are often an indication of the Government's strategic development plans. Land on the reserve list is put up for tender only if developers make an acceptable initial offer.

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