National University of Singapore (NUS) researchers found that increased golfing activities among top executives of real estate development firms correlate to lower sale prices of new residential units
According to a new study, golf patterns of senior executives change significantly following the semi-annual releases of the government’s land sale schedules in Singapore.
Developers increase the frequency of golf games with other developers by 14 per cent in the first week, and 24 per cent in the second week relative to the week before such announcements.
Informed bidders acquire land parcels at 14.4 per cent lower compared to other less informed or uninformed winning bidders.
The lower bid prices were converted into losses in land sale revenue of more than SGD 147 million per year between November 2010 to May 2014. On average, this corresponds to about 0.2 per cent of the government revenues and about one per cent of the total land sale proceeds, on average.
The lower land prices allow the developers to sell new units about eight per cent cheaper, NUS said.
The study also found that such land transactions by informed bidders generate short-term negative spill-overs to other properties in the vicinity. The prices of neighbouring projects are about 9.9 per cent lower within 30 days after the land auction results are publicised, and the effect lasted for no more than 90 days.
“Senior executives such as directors and CEOs gather information through informal social networks to improve their companies’ performance," said Professor Sumit Agarwal, Low Tuck Kwong Distinguished Professor in Finance, who co-authored the study.
"While information sharing is not prohibited by law, governments whose fiscal revenue relies on a large proportion of land sale revenues must be prudent of developers’ behaviour on the golf course to ensure a competitive land auction market.”