Southeast Asian markets saw the fastest price growth for prime development land in the two years from December 2011, while the more mature markets of Hong Kong, Singapore and Tokyo experienced the lowest price growth over the same period, according to the Knight Frank Prime Asia Development Land Index.

Southeast Asian markets saw the fastest price growth for prime development land in the two years from December 2011, while the more mature markets of Hong Kong, Singapore and Tokyo experienced the lowest price growth over the same period, according to the Knight Frank Prime Asia Development Land Index.

The research showed that between December 2011 and December 2013, out of the 26 markets tracked (13 residential and 13 office), 24 saw an increase in their indices, reflecting increasing prime land prices amid tight supply and strong demand. Overall, prime Asia residential and office development land indices increased 50.4 per cent and 38.3 per cent, respectively.

The land prices in the index are calculated using a “repeat residual valuation methodology”, where Knight Frank looks at what a reasonable developer would be expected to pay for development land, given the gross development value of the potential scheme, costs (construction, professional, contingencies, and financial), required profit, acquisition costs and relevant taxes.

Bangkok saw the highest growth in the prime residential development land index over the two years with an increase of 190.7 per cent. The Thai capital was followed by Jakarta(184 per cent), Kuala Lumpur(67.2 per cent), Beijing(37 per cent) and Phnom Pen(35.2 per cent).

In contrast, the more mature markets in Asia recorded the lowest residential price growth. Singapore had negative growth of -1.4 per cent, while residential prices in Hong Kong and Tokyo increased increased 0.1 per cent and 4.7 per cent, respectively.

“A key observation from our findings points to the fact that in developing Asia we are seeing low liquidity and rapid land price appreciation, whilst in developed Asia such as Hong Kong, Singapore and Tokyo, we see the highest land prices and redevelopment opportunities,” said Nicholas Holt, head of research for Asia Pacific.

"In these mature markets, the lack of prime development land has led to more emphasis on redevelopment opportunities, while given the higher cost of land and in some cases high holding taxes, there is often more pressure to develop quickly,” said Holt, head of research for Asia Pacific.

Prime office development

Meanwhile, Jakarta saw the largest increase in the prime office development index over the last two years with a rise of 192.3 per cent, above Kuala Lumpur(64.9 per cent), Beijing(53.1 per cent), Bangkok(52.6 per cent) and Phnom Penh(35.3 per cent).

Singapore recorded the lowest growth regionally with a fall in the prime office index of of 13.1 per cent. Tokyo saw an increase of 7 per cent, while Hong Kong had growth of 8.7 per cent.

“These developing Asian markets are seeing their prime residential markets being fuelled by the creation of wealth, and the growth in number of HNW individuals. Meanwhile, prime office capital values in leading developing Asian cities are catching up with the values that we see in Hong Kong, Singapore and Tokyo as local and multinational occupiers drive up rents in and around the CBD, while prime yields continue to compress,” the report said.

Singapore

Alice Tan, head of research for Knight Frank Singapore, said that despite the tempered market sentiment for the Singapore residential sector, developers’ interest for residential land remains strong as they turn towards the government land sales programme to shore up their land bank.

“The influx of more developers has intensified competition in the bidding for land sites. However, developers are likely to exercise greater prudence in their bid price offers due to recent price declines of private homes and rising construction costs,” said Tan.

“Office sector is rising to become a potential outperformer for Singapore’s property market this year, with rising office rents and healthy occupancy rates for the last three quarters. As such, demand for commercial land sites is likely to increase with potentially higher prime office land prices this year,” she added.