LAND BANKING VERSUS SHORT-TERM INVESTMENT-TO-SALES CYCLES

Abstract

The strategy of land banking undertaken by private residential developers in Singapore has often been overlooked as an approach to the development of real estate owing to the large capital outlay involved. Nevertheless, large private developers with strong cash flow positions can leverage on land banking to consolidate their market share and reap benefits from the establishment of this advantageous market position. This research study examines the relationship between land banking and transaction prices in the field of private residential real estate in Singapore. It adds on to the land-hoarding phenomenon identified in Hong Kong and Mainland China where property prices have experienced an upward movement due to the artificial restriction of housing supply by private developers. This study hypothesizes that a positive relationship exists between land banking and per square foot prices of private residential real estate in Singapore. Through the application of hedonic analysis via multiple linear regression models, it was concluded that the strategy of land banking does not produce a premium on transaction prices, but serves to fulfill non-economic corporate objectives instead. Such information can be further applied to the workings of the Government Land Sales program as the sale of sites has a direct impact on the business model of private residential developers in Singapore that undertake land banking as part of their corporate strategies, acting as an engine for growth.