Singapore Developers bidding more cautiously in Government Land Sales 2012

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As the government plans to release more land for sale, developers are bidding more cautiously taking into consideration, the location of the property and its eventual selling price.

According to a BNP Paribas report, which analysed about 100 government land sale bids from 2007 to last month, developers are lowering their bids on land sites because of the uncertainty on whether prices will hold up by the time they would have to sell the project.

First, a developer has to consider the break-even figure when coming up with a bid price, or the amount they intends to pay for a site. The break-even figure takes into account the costs required in terms of construction, finance, marketing and administration.

The report revealed that beginning in mid-2011, the difference between developers' expected break-even price and existing selling prices widened to 19.8 percent, way above the mean of 12.1 percent.

The 12.1 percent mean represents the profit margin which developers have achieved on average. The eight-percentage point difference likely reflects developers' efforts to guard against possible increases in selling prices.