Govt rebuts REDAS president’s comments, defends Reserve Price system

The Ministry of National Development (MND) has defended its Reserve Price system for state land tenders, and disagrees that it has constrained market forces in Singapore.

It issued a statement to rebut what the Real Estate Developers’ Association of Singapore (REDAS) President, Simon Cheong had said on Wednesday.

Cheong cited two sites, Tampines and Ten Mile Junction, saying they were released for sale but not awarded at “market prices”.

He had also said “the higher bid prices generated more revenue for state coffers but also accentuated the demand-supply mismatch.”

But the ministry disagreed with his view totally.

First, it said it is arguable if awarding the two sites at the low bid prices in 2008 would have moderated property prices or simply allowed the bidders to achieve a higher profit margin.

“The government has a responsibility to safeguard the nation’s assets, including government land, and to be able to extract the highest value from those land. So the government does have a duty to try to balance a number of factors, not just smoothing out the market volatility, but also to ensure that the lands are sold at a fair and open market price,” explained Nicholas Mak, lecturer, Real Estate, Ngee Ann Polytechnic.

Next, the MND said the Reserve Price system has not deterred the successful sale of sites under the Government Land Sales (GLS) programme.

In fact, it said in 2008, seven residential sites were sold via the Confirmed List.

The two sites of Tampines and Ten Mile Junction were the few exceptions.

Thirdly, the government pointed out that the potential yield from the two sites is small (estimated at about 800 units), compared to the total supply of 60,476 uncompleted units of private housing from projects in the pipeline.

So it is questionable if the added supply from the award of these sites in 2008 would have affected prices today in any way.

Lastly, a Reserve Price is necessary to help the ministry decide whether to award a sale site.

The government uses the price as a guide, and not a rigid formula to decide whether to award a sale site.

On the two highlighted sites, the ministry said it is not convinced the bids represented fair market value. Rather, they were opportunistic ones.

This is because there were very few bids for the sites and these were exceptionally low.

Some industry watchers agree.

“If the developer were to buy the land at a very low price, there is no guarantee that he will sell the new development at a very low price. Chances are that if the market were to recover, and prices start to escalate, the developer will sell the new project at as high a price that he can achieve in the market. And he will congratulate himself for achieving that (huge) normal profit,” said Mak.

In its statement, the ministry said it is the government’s objective to maintain a steady and healthy property market.

If it allows a property market bubble to form, it will impact housing affordability and the economy, if it bursts.

Source : Channel NewsAsia – 25 Mar 2010

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