Published June 20, 2007

A balancing act on property prices

THE latest government land sales programme reflects the balancing act that is required to respond to the booming property market in Singapore. The government announced last week its biggest ever land sales programme, offering a total of 41 sites in the second half of this year comprising 14 through the confirmed list and 27 in the reserve list.

The 14 confirmed-site offer is double the seven in the H1 2007 programme and also the highest figure since the reserve list system was introduced in 2001. The 41 plots the government is offering for the second half can potentially yield 8,000 private homes and 3.8 million sq ft gross floor area (GFA) of commercial space and 6,500 hotel rooms. But the programme - despite its scale - is no sledgehammer response to rising demand and prices.

Worth noting is the fact that none of the 20 residential sites in the programme are in prime district locations, where prices have climbed the steepest. It is a clear indication that the government, while keen to keep prices in the mass market affordable for Singaporeans, is willing to let market forces regulate prices in the luxury segment. The market has welcomed the approach, and property stocks rose the day after the programme was announced.

There was something to take away too, for those keenly watching rising office rentals - which have created fears that Singapore's attraction to businesses may be eroding away. The government, in announcing its land sales programme, took pains to highlight the additional sources of office space that will be coming onstream. This will include around 1.4 million sq ft of space from vacant state buildings, small plots for office and other commercial uses and transitional offices. In all, the government said 6.9 million sq ft of office space will be completed by 2010, including the first phase of the Marina Bay Financial Centre.

While the latest land sales programme is generally welcomed as a measured response to developments in the property market, more may have to be done. For one, some would argue that the government cannot afford to leave the prime segment alone if there is a continued escalation in prices and rentals.

At stake could be Singapore's efforts to attract and retain top-end foreign talent. A recent American Chamber of Commerce survey found that 61 per cent of the senior US executives polled were dissatisfied with housing prices. And the sharp increases in property prices have pushed up Singapore one notch to be the fifth most expensive city for expatriates in Asia and the 14th most expensive in the world, according to a Mercer survey this week.

The government has enough firepower in its arsenal - from land sales to legislative measures - to bring to bear on the property market. But it still faces the challenge to strike the correct balance between supply and demand, and between allowing the property sector to thrive and the need to maintain Singapore's competitiveness. It's a fine balancing act that needs to be performed.