Demystifying Launch Price in Real Estate: What Buyers and Investors Need to Know

Demystifying Launch Price in Real Estate : When it comes to purchasing a new property, understanding how the launch price is determined can be quite confusing. Many buyers wonder why prices are set at certain levels and whether developers can simply lower prices if land costs drop.

This blog post aims to demystify the concept of launch price in real estate, shedding light on the key components and factors that influence it. For more information, contact us at the form below !

What Makes Up the Launch Price?

The launch price of a property is not arbitrary. It is a carefully calculated figure based on several critical components:

Land Cost
The price developers pay to acquire the land is a major factor. Land acquisition can happen through various modes such as Government Land Sales (GLS) or en-bloc redevelopment. Prices vary significantly depending on the location, such as the Core Central Region (CCR), Rest of Central Region (RCR), or Outside Central Region (OCR). For example, land in the CCR commands a premium compared to other regions.
Construction Cost
Construction expenses include materials, labor, and other related costs. Since the pandemic, these costs have surged by 30-40% due to supply chain disruptions and labor shortages. This increase significantly impacts the overall cost developers incur.
Miscellaneous Costs
These include financing charges, legal fees, professional services, administrative expenses, demolition costs, furniture and fittings, taxes, and marketing expenses. Typically, these can amount to 20-25% of the combined land and construction costs.
Developer Profit
Developers aim for a profit margin, usually ranging between 10-20%, to justify the risks and investments involved.

Launch Price Formula:
Launch Price = Land Cost + Construction Cost + Miscellaneous Cost + Developer Profit

Why “Developer Bought Land Cheap Will Sell Cheap” is a Myth

A common misconception is that if developers acquire land at a lower price, they will pass on the savings to buyers. However, this is rarely the case because:

Construction costs have risen sharply and remain high.
Interest rates have increased, raising borrowing costs for developers.
Changes in government regulations, such as the harmonisation of Gross Floor Area (GFA) definitions, reduce the saleable area, affecting profitability.
Miscellaneous costs and profit expectations remain constant.

Therefore, even if land prices drop, these other factors often prevent a significant reduction in launch prices.

Demystifying Launch Price in Real Estate : Impact of Government Master Planning and Regulations

Government master plans and urban transformation projects play a crucial role in shaping property values. Areas like the Greater Southern Waterfront, Punggol Digital District, and the Rail Corridor are undergoing significant development, which can enhance the attractiveness and pricing of nearby properties.

Additionally, regulatory changes such as the harmonisation of GFA definitions (effective June 2023) mean that all strata areas are now included in the gross floor area calculation. This reduces the total saleable area by about 7-8%, pushing developers to adjust land bids and pricing strategies accordingly.

What Buyers Should Consider

Location and Master Planning: Properties in regions targeted for development and urban renewal tend to hold or increase their value.
Price vs. Space: Buyers prioritize proximity to transport nodes, price, and space. New launches with 2- and 3-bedroom units are particularly popular.
Market Sentiment: Many buyers expect prices to remain firm, though some may defer purchases due to budget constraints or waiting for a better pricing sweet spot.

Conclusion

Understanding the launch price in real estate requires looking beyond just land costs. Construction expenses, miscellaneous fees, government regulations, and market conditions all interplay to determine the final price. For buyers and investors, being informed about these factors helps in making better decisions and setting realistic expectations.