Good Class Bungalow land prices peaked in July 2007

Source : Business Times - 17 Jul 2008

I REFER to the report, ‘Prices of Good Class Bungalows still going up, but volume falls’ (BT, July 14) by Arthur Sim.

I am not alone in having received numerous calls from owners who own Good Class Bungalows (GCBs), as well as architects.

The article is misleading and flawed.

GCB land prices peaked in July 2007. If one were to take the average, one would be looking at the top end of $1,100 psf. 11 Queen Astrid Park was offered $35 million for 31,806 sq ft which equals to $1,100 psf. GCB land prices have been declining since the onset of the sub-prime crisis at the beginning of August 2007.

16 Leedon Park was contracted for $823 psf, almost 25 per cent off the peak of $1,100 psf. The property was bought for speculative purposes as it was immediately put up for sale at $1,000 psf. It remains unsold as of today. 11 Ford Avenue was sold for $782 psf, reinforcing the view that GCB land prices are declining. 2 Swettenham Road was transacted for $810 psf, further indicating the weakness of GCB land prices. 39 Leedon Park which was launched with much fanfare for $35 million was subsequently sold for $27.5 million.

The current market for GCB land prices would find buying support at around $800 psf. This is clearly a drop of almost 30 per cent. I foresee in the next six months that the support level could test $700-750 psf.

One reason why GCB land prices are declining could also be the high cost of reconstruction. At current levels of around $600 psf for a relatively good quality development, costs of building are weighing down on GCB Land prices. In fact, I foresee construction cost rising as high as $1,000 psf in the next one to two years. This would add further pressure on GCB land prices.

The bright side, however, are GCBs with existing buildings would be more resistant to price pressures. Buyers could reduce costs significantly by retrofitting the existing structures. The current level of new bungalows would find buying support at around $1,100 psf.

On a closing note, I find that it is absurd to justify price increases by taking into account the dollar value divided by the number of bungalows sold.

Michael French
Managing director
Asia Premier Property Consultants Pte Ltd

Arthur Sim replies: The report clearly states that the GCB peak in 2006 refers to the volume of transactions and not the highest prices achieved. Anyone looking to buy a GCB will know that the price for a newly constructed GCB and an old GCB can vary tremendously, even if these are on the same street. The price for the a new GCB will reflect construction costs while the price for the old GCB will more likely only reflect land cost. As such, using an average land price for GCBs to calculate price movements of GCBs (as the letter writer does) is not accurate. The price increases referred to in the report come from examples of transacted prices of the same property over 2007/2008. In the examples provided, prices increased.