PARTICIPATION OF CHINESE DEVELOPERS IN GLS AND THEIR IMPACT ON PROPERTY PRICES

Abstract

The growing participation of Chinese developers in Singapore’s residential property market in recent years has garnered much attention and precipitated both anticipation and concern. Since 2010, Chinese developers have developed an increasing number of residential projects in Singapore. In this research, the bidding behavior of Chinese developers and the impact of private residential properties built by Chinese developers on property prices are studied. The first hypothesis is that Chinese developers are more aggressive in their bidding strategy. Using data from historical bidding information released by the URA and HDB, it is found that Chinese developers score higher average winning margin and percentage bids than their local counterparts. The second hypothesis is that Chinese developers charge at a discount for the properties they develop as they are new to the market. Using transaction data from Real Estate Information System (REALIS), key results show that, after controlling for traditional expected variables such as location and space attributes, developments built by Chinese developer are positively associated with property prices. Further empirical tests were able to identified this premium to be closely related to the land cost Chinese developers tendered in Government Land Sale (GLS). As land cost is a sunk cost, it is a proxy representing the desirability of land and the market power that the developer holds for a particular land parcel since land is heterogeneous. The entry of Chinese developers arguably increased competition, both in terms or pricing and quality of the product, in the residential real estate market.