Simon Cheong, the president of the Real Estate Developers’ Association of Singapore (REDAS), has urged the government to allow the property market in the country to operate completely as a free market.
Speaking during the launch of a new price index for private homes in Singapore, Mr. Cheong asked if the state should be so concerned with prices of private housing when the segment serves only 16.5 percent of the total population.
According to Mr. Cheong, who is also the acting chief executive of SC Global Developments, he was commenting on the market despite being personally advised not to do so for fear of it being a ‘sensitive topic’.
“But, on balance, in the interest of Singapore’s property market, I decided to do so,” he said. “If Redas members who are fighting in the foxhole everyday for the interest of a healthier property market do not speak up, then who will?” Property developers in Singapore now have the unenviable task of having to step up their game very quickly to meet demand, he added.
The Singapore government, which owns over two-thirds of all land, controls the land supply. The reserve price system largely determines the land price here.
“As the supply side of the development equation is managed by the public sector, market forces are often not wholly free to respond to demand,” said Mr. Cheong.
He highlighted the results of two recent government land tenders, which he said described the “conundrum and the dilemma developers face” everytime they bid for sites under the government land sales programme.
In June 2008, a Tampines site first put up for sale by the government was not sold after the sole bid of $118 psf ppr was rejected after failing to meet the reserve price.
However, in another tender exercise earlier this month, it was awarded to the top bidder at $421 psf ppr – 3.6 times the previous price.
Similarly, a mixed-use site located at Ten Mile Junction, which had a failed bid of $162 psf ppr in April 2008, was awarded for $437 psf ppr in February 2010.
In both cases, higher bid prices generated more revenue for state coffers but also accentuated the mismatch on demand and supply.
“With a higher land cost, these developers must now sell at higher prices just to maintain an equitable level of profitability.”
Mr. Cheong also questioned the recent measures by the government, which was designed to keep private housing affordable. These include the removal of the interest absorption schemes and deferred payment and the introduction of a stamp duty for sellers.
While some felt that private property was being priced beyond their means, he stressed that it served only 16.5 percent of the demography. “Should it (the state) intervene to restrain the rise in property values to make private housing more affordable or should it be left to market forces?”
Mr. Cheong also said that, theoretically, a certain level of speculative activity in the marketplace can catalyse the sales of new developments and improve the liquidity of property assets.
Speculators will provide investors with another source of a limited commodity at a price premium when demand exceeds supply by a large margin. Prompted by the higher prices, developers respond by launching more developments for sale, which can narrow the gap with demand, added Mr. Cheong.
He concluded his speech by pointing out that pent-up demand for mass-market housing and high liquidity, with some $301 billion of cash deposits in banks and another $67 billion of investible CPF funds reported in 2009 are among the many factors that make real estate the preferred asset class in the near term.
“Is it any wonder then that the recent measures to cool the private property market did not quench the thirst of genuine home buyers and investors – local and foreign alike – who clearly have strong confidence in the fundamentals of Singapore’s real economy and its ascendancy as a global city in Asia?” he said.
Mr. Cheong is hoping that the launch of the new index will be “a step towards improving market transparency and help lessen future needs for frequent market interventions, allowing a freer hand for market forces to work out its own genius.”