BT : Govt rebuts Cheong's 'free market' theory

Business Times - 26 Mar 2010

Govt rebuts Cheong's 'free market' theory

It rejects Redas chief's 'hands-off' plea, says it can't let private property bubbles form

By UMA SHANKARI

(SINGAPORE) The government yesterday defended its policy of managing price movements in the private housing market and also stood by its method of supplying developers with state land sites.

It was responding to Wednesday's speech by the president of the Real Estate Developers' Association of Singapore (Redas), Simon Cheong, who said that the government should allow the private property market here to operate as a completely free market.

Mr Cheong also questioned the need for government intervention to manage the rise of private home prices and 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.

His speech took some developers by surprise but most said that it was 'brave'. There was also broad agreement that the government should reveal the reserve price of each site it puts up for sale.

The Ministry of National Development (MND) said it would 'like to respond to the key points he (Mr Cheong) raised'.

'The government's objective is to maintain a steady and healthy property market where price movements are supported by economic fundamentals,' MND said in a statement. 'A property market bubble, if allowed to form, may not only impact housing affordability but also severely impact the economy when it bursts.'

MND does this by making sure that there is an adequate supply of land to meet demand and by providing timely and comprehensive real estate information to the public.

'When necessary, the government will also introduce measures to dampen market exuberance and prevent prices from running ahead of economic fundamentals,' MND added.

The ministry has in recent months taken several steps to keep private housing affordable, including the introduction of a stamp duty for sellers and the removal of the deferred payment and interest absorption schemes.

In his speech, Mr Cheong also cited two sites - one in Tampines and another at Ten Mile Junction - that were not awarded in 2008 after government land tenders as examples to illustrate how market forces were not allowed to act freely and were constrained by the reserve price system.

Both sites were recently awarded in new tenders at much higher prices than the bids in 2008.

Mr Cheong argued that if the government had awarded the sites at lower prices in 2008, it could have helped to moderate the recent hike in private home prices.

But MND 'disagrees totally with his view'. Firstly, it is arguable if awarding the two sites at the low bid prices in 2008 would have moderated property prices, MND said. It could have instead simply allowed the bidders to achieve higher profit margins.

MND also said that the potential yield from the two sites is small (around 800 units) compared to the total supply of 60,476 uncompleted private housing units from projects in the pipeline (as at Q4 2009) - of which 34,234 units are still unsold. It is 'questionable' whether the added supply of the two sites in 2008 would have affected prices today in any way, the ministry said.

The reserve price also did not deter the successful sale of sites under the government land sales programme in 2008, MND pointed out. That year, seven residential sites which could yield a total of 2,464 units were sold through the confirmed list.

The Tampines and Ten Mile Junction sites, which were released for sale through the confirmed list but not awarded, were among the few exceptions.

MND added that a reserve price is necessary, as it is the government's duty as the custodian of state land to ensure it obtains a fair market price for a site. But the reserve price serves only as a guide, and is not a rigid formula for the government in deciding whether to award a sale site.

Said MND: 'The government had awarded sale sites in the past even when the top bid was below the reserve price. However, for the two sites cited by Mr Cheong, the government was not convinced that the bids represented fair market value rather than opportunistic bids, as there were very few bids for the sites, and the bids were exceptionally low.'

Developers BT spoke to said that MND's response was 'as expected'.

'MND has always stuck to its line about maintaining a sustainable property market and so we didn't expect changes just because of his (Mr Cheong's) speech,' said the chief executive of a property group here.

But while not everyone agreed with all parts of Mr Cheong's speech, most developers were in favour of asking the government to disclose the reserve price of each site it puts up for sale by tender.

'For future tenders, if the reserve price is released, there won't be cases where bids come in under the minimum price,' said EL Development managing director Lim Yew Soon. 'By simply listing the reserve price, it makes the whole process easier.'



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