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Various factors behind high land costs

It is a common misconception that high land cost will lead to high property prices (Keep foreign bidders out of housing; June 11).

The reality is that land cost is a result derived from the prevailing property prices and other influencing factors such as interest rates.

To give an analogy, the prices of flour would fluctuate according to the demand for bread.

In the same way, the demand for residential units, and their prices, would affect land costs.

Hence, developers intending to make a profit from any development would do their sums, based largely on the prevailing property prices.

Foreign developers expose themselves to higher risks if they bid high for land, as this will squeeze the other components of the development, including project profitability.

We should not restrict them from bidding, if theirs is an investment decision.

Perhaps they have a more optimistic outlook on our longer-term economic conditions.

Singapore is in an enviable position compared with many countries because we have many affordable housing options, particularly a range of choices of public housing unparalleled anywhere else.

Some of the cooling measures here, such as the total debt servicing ratio and loan-to-value limits, also help minimise any social repercussion from exuberant purchases.

Stephen Chia Keow Chin

A version of this article appeared in the print edition of The Sunday Times on June 18, 2017, with the headline 'Various factors behind high land costs'. Print Edition | Subscribe