Study finds 'insider trading' on the golf course lowers Singapore land prices

[SINGAPORE] A strange thing happens in Singapore after the government announces it's selling highly-coveted land. Executives from developers bidding for the sites hit the golf course together.

In what it labels "insider trading", a landmark study by the National University of Singapore (NUS) Business School found those firms paid 14 per cent less for land at auction, costing the government hundreds of millions of dollars in lost revenue and dragging down prices of neighbouring properties.

However, it's good news for buyers, as lower land costs allow developers to sell new units 8 per cent cheaper than they otherwise would.

Using golf records, the study found the proportion of games between senior executives of land-bidding firms rose 14 per cent in the first week after land sales are announced, compared to the week before, and 24 per cent in the second week.

"In a competitive land auction market, firms need to outbid rival firms to win the auctions; the winning motives, however, do not stop the firms from colluding and cooperating with each other," the study, released on Wednesday, said. "One way to collude or cooperate is for top managers of the bidders to play golf with top managers of rival bidders and exchange information related to the bid."

The study didn't name any executives or firms involved in the information sharing.

'Presumptuous'

The Real Estate Developers' Association of Singapore rejected the findings.

"Even if there's an exchange of information, it's not a guarantee that you will win the bid," the group's president Chia Ngiang Hong said. "Real estate executives play golf quite often. To just say we play golf just to discuss land sales or business is presumptuous."

The researchers trawled through a Singapore Golf Association database of 30,108 golfers and more than 400,000 scores from 2010 to 2014. In Singapore, it's mandatory for a player to submit their score to the sport's governing body after a round.

They then cross-referenced a separate database of property developers, and found 774 golfers were senior executives at "land-bidding" firms.

The "informed bidders" paid 14.4 per cent less for winning land bids than "less-informed" or "uninformed" bidders, the study found. That cost the government an estimated S$147 million a year, or about 1 per cent of total land sale proceeds, the study found.

"Informed bidders are more likely to face a lower 'winners' curse' in their winning bids, despite the stiff competition in the land market," the study found. "This result shows that informal interactions improve information dissemination that benefits companies in the decision-making process."

Nearby developments also suffer, with the study finding neighbouring properties sell for almost 10 per cent less within the 30 days after the announcement of the land auction results.

"The ripple effect is seen when these lower land transaction prices send a negative signal indicating a downward market trend for property prices," said professor Sumit Agarwal, a real estate and economics academic at NUS and one of the study's four authors.

BLOOMBERG

Clarification note: NUS withdrew the "insider trading" claim on Jan 23.