So what is the ‘right price’?

The authorities appear to be in a dilemma: Get the best price from land sales to fill the government coffers, or bring the cost of business down.

The recent rejection of a bid by United Overseas Land (UOL) and sister company Singapore Land for a parcel of land in Paya Lebar (picture) leaves not only the lone bidder peeved but the public somewhat confused.

The Urban Redevelopment Authority (URA) rejected the bid because it felt that the offered price was “too low”. But the URA had earlier reportedly told potential bidders that “selection of the successful tenderer will be based on the tendered land price only”.

Why then the change of mind on the grounds that the bid was too low? “Too low” must be taken to mean that the offer by UOL and SingLand was lower than the reserve price which is never publicly disclosed. What then is the right price? Also, now the URA has come out to say that the reserve price is not the only factor in determining whether the Government awards a site and that “revealing it would colour developers’ assessments – and bids”.

The Straits Times quoted the URA as saying that “it would not be ‘meaningful’ to reveal the reserve price to influence developers’ independent assessment and bid prices, which is dependent on many factors including their risk profile and their outlook of the market”.

All sorts of information, including the “reserve price”, would determine the final bid by the developer. Disclosing the reserve price would only ensure that the developer does not waste time, effort and money making an altogether fruitless bid.

The URA was also quoted as adding: “It would be more meaningful for the Government to make its own assessment of the developers’ independent bid prices, taking into consideration the reserve price, in deciding whether to award the land parcel.”

For a State that often talks about transparency and letting market forces decide prices, I find the arguments somewhat strange. Why are market forces not allowed to operate in the business of land sales?

In the first place, having a reserve price is contrary to letting market forces decide the outcome. Not disclosing it adds to the uncertainty of a bid which is not cheap to make, as developers have to hire architects and designers in coming up with something to please the URA. Furthermore, the URA had earlier said the outcome of the Paya Lebar bid would be determined by price only.

One letter writer to the media said last week: “While there are merits to the argument that it should always try to get a good price for state land, it should also consider the business and social impact of its high land price policy.”

Having too many subjective elements in arriving at a decision can lead to all kinds of suspicion and allegations. Why should any government body be subject to that?

The UOL-SingLand consortium, in expressing its disappointment with the outcome, said: “The rejection came as a surprise to us, given that our bid price was a fair one in view of the site’s technical challenges and resultant impact on layout as well as the recent global economic turbulences and enhanced market risks.”

In view of the fact that UOL-SingLand was the only bidder, its offer under the circumstances must be deemed the “right price” in the present business climate. Why else were no other developers interested in participating?

By Conrad Raj – editor-at-large at Today.

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