Let private property fly free, urges Simon Cheong

Redas chief says state intervention on supply side not always helpful

The president of the Real Estate Developers’ Association of Singapore (Redas), Simon Cheong, came out strongly yesterday to say the government should allow the property market here to operate fully as a free market.

Mr Cheong, who was speaking at the launch of a new price index for private homes in Singapore, also asked if the state should be so concerned with private housing prices when the segment serves only 16.5 per cent of the overall population.

Mr Cheong, who is also chief executive of SC Global Developments, said that 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?’ Real estate developers in Singapore now have the unenviable task of having to step up their game very quickly to satisfy demand, he said.

In Singapore, the government, which owns more than two-thirds of all land, controls the land supply. Land price here is largely determined by the reserve price system.

‘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,’ Mr Cheong said.

To illustrate his point, he highlighted the results of two recent government land tenders, which he said illustrated the ‘conundrum and the dilemma developers face’ when they bid for sites in the government land sales programme.

A site in Tampines first put up for sale by the government in June 2008 was not sold after the sole bid of $118 per square foot per plot ratio (psf ppr) was rejected for failing to meet the reserve price.

But earlier this month in another tender exercise, it was awarded to the top bidder at $421 psf ppr – 3.6 times the previous price.

Similarly, a mixed-use site at Ten Mile Junction, which had a failed bid of $162 psf ppr back in April 2008, was awarded in February this year for $437 psf ppr.

In both cases, the higher bid prices generated more revenue for state coffers but also accentuated the demand-supply mismatch.

‘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 recent government measures designed to keep private housing affordable, such as the introduction of a stamp duty for sellers and the removal of the deferred payment and interest absorption schemes.

While some felt private property was being priced out of their reach, he pointed out that it served only 16.5 per cent 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 a certain level of speculative activity in the marketplace can, in theory, improve the liquidity of real estate assets and catalyse the sales of new developments.

When demand exceeds supply by a large margin, speculators provide investors with another source of a scarce commodity at a price premium. And encouraged by the higher prices, developers respond by launching more developments for sale and, in so doing, narrow the gap with demand, Mr Cheong added.

He concluded his speech by pointing out that there are various factors that make real estate the preferred asset class in the near term, such as 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 last year.

‘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 added that he hopes 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’.

Source : Business Times – 25 Mar 2010