A PRICE RESISTANCE SITUATION: HIGH GOVERNMENT LAND SALE BID'S EFFECT ON HOUSING PRICES

Abstract

Obtaining land slated for private residential development through the Government Land Sales (GLS) is unique to Singapore, where the State owns majority of land. This is an effective way the government can regulate the land supply and at the same time facilitate long term land use planning in Singapore. Whilst Government Land Sales is a common method for developers in Singapore to obtain land, its mode of sale through a competitive bidding process is widely discussed and much attention has been given to the potential disturbance on the health of the housing market in the long run, as developers bid competitively for GLS sites. This paper seeks to quantify the impact of high GLS land bids on housing prices. Using a hedonic regression model, results show that high GLS bid result in price resistance in new sales prices compared to those with a low GLS land bid. Price resistance refers to the resistance exhibit by developers to not reduce new sale price, regardless of market movement. Also, interestingly, there is evidence for price resistance during both market boom and bust observed in new sales prices of projects with a high GLS land bid, compared to those with lower GLS bids. It is postulated that controlling for locational characteristics, during market boom, new sale prices of projects with high GLS bids are already higher than a similar comparable, hence buyers are less willing to pay more during market upturn, Similarly, developers are not willing to sell lower during a market downturn due to loss aversion, leading to a price resistance both ways. When assessing whether there is a locational pattern for price resistance due to high GLS land bids, results fascinatingly show that during market upturn, price resistance is more pronounced in new sale prices in Core Central Region (CCR), whereas during market downturn, price resistance is more pronounced in new sale prices Outside of Central Region (OCR).