THE PRICE IMPACT OF A SUCCESSFUL SALE OF STATE LAND ON NEIGHBORING [NEIGHBOURING] RESALE PROPERTIES

Abstract

The government land sales program is a key source of land for private developers in Singapore and serves to control price appreciation in the private housing market by boosting supply. This study aims to investigate the impact of the successful award of a state land sale on the resale price level of non-landed private properties located in the vicinity of the awarded site using a difference-in-difference (DID) approach. The government land sale site chosen for this study is the private residential site located along Chestnut Avenue in Bukit Panjang. The sale of Chestnut Avenue provides a cleaner test as the other sold sites during the same period were located very close to each other and is difficult to isolate the effect. Resale transactions of properties in the neighborhood of the sold land parcel are observed for a period of 6 months before and after the announcement day of award. The neighborhood refers to sector 67 (Bukit Panjang) while the control area which has the same estate feel but is further from the sold site refers to sector 68 (Choa Chu Kang region). Hedonic Regression was utilized in the empirical study to identify the impact from the announcement of award while other control variables like the age, floor level, area, tenure and presence of facilities on the property were included to account for the variation in prices. In addition, the prices were normalized using the price indices of completed properties located outside the central region in Singapore to account for time variation over the one year sample period from 25th February 2009 to 25th February 2010. The results reveal that almost all the control variables were statistically significant and with the expected signs. Although there is an increase in prices due to the impact from the sale of Chestnut Avenue, they were found to be statistically insignificant. This could be due to the lagged effect of supply into the market. A successful sale signals oncoming supply but the market may not factor it in before it enters the pipeline through pre- completion sales to increase in the stock level. Thus the market is not significantly affected by the successful sale of a site within 6 months of award. Policy makers could make use of this finding to manage and control the supply of units into the market by timing the market with the release of land.