Why has new launch pricing been increasing over the years?


Let's analyse some factors that contribute to the increasing new launch prices - Rising Land Costs, Rising Construction Costs etc.

New Launch PSF 2013 - 2023

Here’s the pricing and sales volume of new launches over the past decade.

Components of Launch Price

Let’s analyse some factors that contribute to the per square foot (PSF) pricing for new launches.

  • Rising Land Costs
  • Rising Construction Costs
  • Rising Land Betterment Charges
  • Rising Financing Costs
  • Harmonisation of Gross Floor Area (GFA) Changes

1. Rising Land Costs

2. Rising Construction Costs

Over the last 3 years, construction costs have risen across most building asset types, with construction costs for residential flats up 26% between 2021 and 2023.

3. Rising Land Betterment Charges

What is the Land Betterment Charge (LBC)?

The LBC is a tax borne by developers when enhancing or building a development (i.e. redeveloping en bloc sites, adding alterations to an existing building, etc.). Developers who incur LBC would likely pass on these costs to homebuyers.

4. Rising Financing Costs

Rising interest rates have resulted in much higher debt financing costs for property developers, who need to borrow heavily from the banks to finance new projects.

5. Harmonisation of GFA Changes

Under URA’s new definition, all strata areas (such as curtain walls and private air-con ledges) are counted towards the Gross Floor Area (GFA). All voids will be excluded from the Strata Area.

This will reduce the total saleable area (estimated 7% to 8%) that developers can sell at the project, thus increasing developers’ breakeven costs.

The new guidelines would also mean that the future PSF may appear higher due to a “smaller” area that are sold to buyers, but in fact, the liveable space is likely to remain the same.

In Summary,

The costs associated with land acquisition, construction materials, labour, regulatory compliance, and financing all contribute to the overall development costs that will be incurred by the developer.

As these costs have been increasing rapidly over the last few years, new launch pricing has to continue on the upward trend for developers to maintain profitability and cover their expenses.

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