Why It Matters

Balancing act with land sales

Analysts say the latest Government Land Sales (GLS) programme is a calibrated response to stronger demand from developers, but with a cautious eye on possible oversupply. The potential number of private homes from the GLS sites on offer for the second half of this year is slightly more than that for the first half, reversing a trend where supply had been steadily cut in recent times.

Many developers have run out of sites and need to reinvest proceeds from earlier projects, as well as keep their businesses running. As a result, competition at recent land tenders has been keen, while developers have been making competitive bids for sites on the reserve list and even turning to the collective sale market. Foreign developers seem more eager, or cashed up, than the local contingent, with a number of them snagging prime sites recently.

With sites scarce, plenty of money in buyers' pockets and still-low interest rates, land prices can only stay elevated and, as a result, housing prices too.

It is a veritable balancing act, as Minister for National Development Lawrence Wong noted in a blog post. "We are mindful that excessive supply in a weak market can exacerbate a decline in prices. At the same time, insufficient supply can result in future shortage and an unwarranted spike in housing prices when demand picks up," he said.

In framing the latest GLS slate, Mr Wong noted a dip in unsold private homes and a pick-up in new home sales to about 600 units a month.

The number of units from sites on the confirmed list for the second half is also comparable to that from sites sold in the first half, including a reserve- list site that was triggered for sale by a suitable bid.

So, the latest figures do not spell a major mindset change. Supply should stay low but could be lifted if the number of unsold units keeps falling.

"The Government recognises there is an oversupply and market conditions have not recovered yet, although volumes have improved recently," said JLL national research director Ong Teck Hui. Added Savills Singapore research head Alan Cheong: "In an imperfect property market, the Government is in an unenviable position of balancing the interest of all parties."

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A version of this article appeared in the print edition of The Straits Times on June 11, 2016, with the headline Balancing act with land sales. Subscribe