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Land costs 'outpaced rise in home prices'
They have also overtaken increase in household incomes, says DTZ study
By: Fiona Chan
THE price of land in Singapore has shot up in recent years, outpacing the rise in both home prices and household incomes, according to a new study by property consultancy DTZ.
Developers are still bidding aggressively for sites, because they have sold much of their existing land bank and competition is becoming more intense as new players enter the market, it added.
DTZ found the average cost of land sold in government tenders has more than doubled in the last five years, from $310 per sq ft of gross floor area in 2008 to $656 per sq ft in the first half of this year. This means land costs have grown at an average compound rate of 18.2 per cent a year, compared with 9.1 per cent for HDB resale prices and 5.2 per cent for private property prices, DTZ added.
Land prices have also risen faster than salaries. From 2008 to last year, incomes rose at a compound annual rate of 5.3 per cent for the average household and 6.2 per cent for the top 10 per cent of earners, official data shows.
If land costs keep soaring, the trend could push up selling prices of homes and squeeze developers' profit margins, DTZ cautioned.
Land now makes up about three-fifths of development cost on average, up from two-fifths in 2008, it said. "A continued run-up in land cost increases the risk of developing a self-reinforcing dynamic which could push selling prices higher and beyond fundamentals," the report said.
"Developers' profit margins could also be affected... especially in the light of a possible increase in financing cost due to a rise in interest rate and labour costs as a result of manpower restrictions in the construction sector."
DTZ also said competition for land is likely to intensify as more non-property players and foreign developers enter the market.
Already, the minimum offers for government reserve list sites have been rising in recent years, indicating developers have been aggressively bidding up land prices, DTZ said. On top of this, the gap between these minimum offers and the winning bids has been widening. Developers now pay double the trigger price on average to secure sites, it added.
But while developers have so far managed to pass on much of this higher cost to home buyers, this may change in the light of the cooling measures and threat of rising interest rates, DTZ warned.
"A disciplined and guarded approach in land bidding practices is needed to ensure sustainable growth in the property market," the consultancy concluded.