Inaugural prime development land index for Asia shows strong price growth

Prime land prices in Asian cities have been soaring in the last two years with a new index tracking markets in locations across the region showing the fastest growth is in the south east markets.

Some 24 of the 26 markets tracked, 13 residential and 13 office, saw increases in the two years from December 2011, according to the inaugural Prime Asia Development Land Index from international real estate firm Knight Frank.

Prime Asia residential and office development land indices increased 50.4% and 38.3% respectively over the last two years with southeast Asian markets see the fastest price growth for prime development land.

Bangkok, Jakarta, Kuala Lumpur and Phnom Penh make up four of the top five cities in terms of price growth and the mature markets of Hong Kong, Singapore and Tokyo saw the lowest price growth.

The index report says that with competition for prime development sites remaining as strong as ever, increasing numbers of developers and investors are looking overseas for opportunities. This can be seen from the 55% year on year increase in intra-Asian cross border developments driving price growth in development land.

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

‘As the first ever index on development land prices of its size and scope, this will become an important resource for developers, investors, financers and policy makers,’ said Nicholas Holt, Knight Frank head of research for Asia Pacific.
‘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,’ he explained.

‘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,’ he added.

For each of the 13 markets, a number of prime sites have been selected for the exercise. These are existing sites within the prime districts of the market including recently transacted land plot or a plot that is currently on the market, however most importantly, these sites accurately represent the prime development market for each sector.