Thursday, 28 May 2015

[Straits Times] High land prices to blame for high property prices

MR DAVID Goh Chee Hoe blamed the increase in property prices on an increased population, low interest rate and lack of government measures to curb residents from buying multiple properties ("Property investment won't narrow income gap"; last Thursday).
I disagree. The key factor that contributed to the rise in property prices is land cost.
Between 2008 to 2013, land value doubled from $310 to $656 per sq ft, or at a compounded 18.2 per cent increase a year, compared with price increase at 9 per cent for HDB and 5.2 per cent for private homes. ("Land costs 'outpaced rise in home prices'"; Sept 10, 2013).
Land price to total house building cost ratio also rose to three-fifths, from two-fifths since 2008.
With such a sharp rise in land cost in a relatively short period, it is clear that it is land that is driving up prices.
Rising land cost is not confined to the Singapore real estate market, but is a worldwide phenomenon that has existed for decades.
For example, in China, land prices increased 800 per cent from 2000 to 2010, while house prices rose 140 per cent.
Rising land prices incentivise builders to crush more homes onto smaller plots. They economise on the space they devote to each home, resulting in shrinking condominium units.
Therefore, to build affordable homes and, hopefully, narrow the income gap, it is imperative that land prices are well managed and controlled.
Wong Toon Tuan