The typical business cycle of a developer:

Purchase of land which can be done via Government Land Sales or en-bloc.

Land cost is often the most expensive component of property development cost in Singapore. If obtained at an excessive level, it could render the whole development unprofitable. Hence, for property investor (be it investors on the equities of property developer or physical real estate), it would be useful to keep track of how much did the developer pay for the land (often quoted on a dollar per square foot basis).

See below for a scenario analysis on a property development undertaken using some high level assumptions:

Digging back on a guest post done for 3Fs (aka B) about a year back, I did an analysis on the the land cost paid by The Garden Residences (By Keppel and Wing Tai) and Affinity at Serangoon (by Oxley) and price sold for their respective launch in June 2018 based on URA data



Based on the "Bread to Flour Ratio", it would seem that Oxley is getting better margin compared to Keppel Wing Tai.

Lets dive in greater detail by constructing a project profit or loss statement on the basis all units are able to be sold at the average price psf achieved to-date:

Assumption of cost of construction psf: $500 psf

Assumption on cost of financing: 3%

What does that translate in the profit and loss for the whole development?




The below would be the return on equity projection for the 2 developments.




The above charges if eventuates will certainly caused the returns to suffer drastically and probably result in Garden making a loss.

Using the above case study, I would like to summarise the key learning points:

• Cost of land paid relative to comparable plots is indicative of the project profitability 
• Excessive supply situation in the vicinity will result in slower sales 
• General rise in market prices will result in developer being able to increase price at subsequent phases of launch 
• Cost of financing could impact the project profitability 
• Cost of financing could be capped when developers use sales proceeds receive to repay borrowings 
• Ability to launch a project quickly will also alleviate financing costs incurred