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GUIDES

3 years ago · 4 min read · by Kian Khai

99.co guides: Hints

on developer launch
price
Developers are in the business of building
houses for people, they want to make a good
product that is of value to the consumers, and
they need to generate healthy profit levels for
their shareholders. We have previously
showed you how to get hints on developer
launch dates, we will now show you how to
get a good estimate of their prices.

If we look at a property in parts, the most

expensive component will be the land,
followed by construction costs. This is similar
to Cost of Goods Sold (COGS) in the
accounting terms we are familiar with. Add on
the administrative, sales and marketing
expenses, finance costs, profit margin etc. we
will arrive at the selling price.

Knowing the land cost and construction cost

will give you an estimate of the developer’s
launch price

Example: Gem Residences

The site was awarded to the developer in
June 2015 at S$345.86 million, which
translates to S$755 per square foot (psf) per
Gross Floor Area (GFA). Construction costs,
including architecture design, is about $350
psf for a mass market condominium. Add
them up and you get the base cost.

Next, take 30% of the base cost that will

cover the other expenses and profits for the
developer. This comes up to about $331 psf,
and it includes:

Administrative expenses: Staff costs,

office rents etc..

Sales and marketing expenses: Showflat

building costs, commission for real
estate agencies, advertising for the
development, lawyer fees for
conveyancing etc..

Finance costs: interest expense paid to

the finance institutions for financing the
development.

Profit margin: the percentage of profits

that the developer makes for the
development

Add them all up and you will get the

estimated launch price on a psf basis.

Gem Residence $psf

Land cost $755

Construction cost $350

Expenses and profit margin $331

Estimated launch price $1,436

Transacted units in the Gem Residences

The transacted prices were in the region of

our estimate.

Let us take a look at the estimated launch

prices of two upcoming projects using the
same methodology

Forest Woods
Forest Woods $psf

Land cost $710

Construction cost $350

Expenses and profit margin $318

Estimated launch price $1,378

Queens Peak
Queens Peak $psf

Land cost $871

Construction cost $350

Expenses and profit margin $366

Estimated launch price $1,587

Take note this is an estimate that works well in

the current low price volatility environment. If
land prices have increased considerably
during the period between the tender award
and launch date, the developers can revise
the price upwards and take in more profits.
The converse is true when prices are going
down and the developer’s profit margin will
be squeezed in an environment of decreasing
land prices. The developer will also do their
competitive market analysis and price
accordingly against their competitors in order
to sell their units.

Construction costs also vary from the $350 psf

used in our estimation. Luxury condos can
cost up to $450 psf to construct and ultra
luxury condominiums can cost significantly
higher.

Does a cheaper launch price means

better value?
If the launch price is below the number we
used in our method, does it really mean you
are getting a good deal? Expensive doesn’t
always mean good, remember the NAC bin
centre saga? It also doesn’t mean they are
cutting corners if the price is lower, the
developer may simply just be more efficient
than their competitors. This launch price
estimate is an indicator for your budget
considerations, and not to determine the
property’s valuation. It is important to study
the track record of the developer, the
architect and the main contractor building
your condo, and not just make your decision
solely based on the price.

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