THE Government has announced that it is stopping land sales till the first half of next year, and moving all confirmed land sites put up for sale to the reserve list.

Most properties have been priced out of many Singaporeans' reach. Prices went up substantially across all property segments when times were good a few years back.

But the conundrum is that prices haven't come down in lean times at the same magnitude with which they spiked during the boom.

Could the current land-supply mechanism have contributed inevitably to this?

The Government sells state land through its land-sales programme, which is based on projected population numbers, business planning and gazetted use.

The reserve list system (RLS) provides a tool for the Government to halt land supply to the market, unless there is adequate interest and developers submit a bid price acceptable to the Government, which must be at least 85 per cent of the Chief Valuer's (CV) Estimated Market Value (EMV).

I see a problem here.

In boom periods, land and property values escalate, and the Government tries to moderate prices through increasing the supply of land.

However, the effect is slow to come due to construction lead time.

Land cost is the most significant component in the value of a property.

So when land prices are allowed to go up more than they decrease, property prices will also follow the same trend.

By 'artificially' maintaining land prices through cutting off supply abruptly, Singapore could end up with a situation whereby high property prices push up land prices, and high land prices further propel property value (and draw in speculators).

When times are bad, as they are now, demand for property should drop, and so will demand for land.

If land prices can drop to a level which reflects true demand, then the CV's EMV under the RLS will also drop, such that a prospective developer's bid price should not be unduly rejected because the EMV was set at an artificially high level.

Many businesses cite rising costs from escalating rentals in office, industrial and commercial properties over the past two years due to limited supply.

Reits have also prospered during this period.

Now, if market demand dampens, prices should be allowed to adjust themselves to the level which best reflects demand.

If this drives down rentals, would it not be good for many SMEs in Singapore, who are already facing declining export demand and other rising business costs?

Mr Ee Teck Siew

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