Land costs have outpaced rise in home prices

New study by DTZ has found the price of land out-stripping rise in home prices in recent years. Developers are still bidding for sites aggressively due to the fact they have exhausted their existing land bank. With more new players coming into the market, competition is expected to be more intense. The average cost of land sold in government tenders has more than doubled in the last five years from $310 psf of gross floor area (2008) to $656 psf in the first half of this year. This implies an average compound rate of 18.2 percent compared with 9.1 percent for HDB resale and 5.2 percent for private property prices.This is on the backdrop of salaries which has risen at an annual compound rate of 5.3 percent for the average household and 6.2 percent for the top 10 percent of earners. On top of this: the gap between minimum offers and the winning bids have been widening. So far, this higher cost has been passed on to the home buyers, amidst all the cooling measures. It could be worrying if the increase in the landcost is not matched by the fundamentals.