RESIDENTIAL LAND BIDS

Abstract

In the last few years, escalating property prices have caused many to speculate what has been the catalyst driving this phenomenon. The benchmark bids made by developers in the Sale of Sites Programme have been advocated by some quarters in the real estate industry as well as the general public to be the main cause and perceived to represent that bidding behaviour may not be entirely rational. This dissertation discusses the bid submissions of big developers during state land sales to demonstrate the presence of rational bidding behaviour. This is achieved through the examination of the methods of bid determination and the factor affecting bid considerations made by these "big boys" prior to bid submission. It is found that the residual method incorporating cashflow discounting is the preferred method adopted for bid determination. As the real estate market gets more competitive, this site-specific approach allows developers to determine the highest and best use for the derivation of the optimal bidfor the land. Prior to the submission of bid, developers would take into consideration many factors like the state of the economy, attributes of the site as well as the housing demand and supply when determining what they consider the fair bid. A case study on Kew Drive land sale is used to illustrate bidding activities and the presence of strategic interaction resulting in special interest bidding. At the same time, the data suggests that big developers prefer the tender method over the auction system of land sale as the later results in higher bids. The study concludes that developers bidding behaviour is rational and the surge in property prices cannot be attributed solely to the benchmark bidding of land.