Singapore, 6 Oct 2016 –
Executive condominiums (ECs) were originally conceived to cater to the aspirations and needs of the so called “sandwiched” class – those whose household income exceed the ceiling for public housing, but not yet able to comfortably afford a private condominium.
Currently, the monthly household income ceiling to qualify for an EC purchase is set at $14,000; whilst it is $12,000 for those purchasing the Housing and Development Board’s (HDB) Build-to-Order (BTO) flats. Over the years, 60 ECs have been successfully launched. To date, 42 of them have been completed. Currently, 18 projects still have units available for sale on the market.
In recent years, the government has ramped up the housing supply. The HDB has released around 20,000 flats annually for sale since 2011. This year, the figure is expected to be slightly lower, at around 18,000 new flats. Similarly, private condominiums have also been in abundant supply. As of Q2 2016, there are 23,282 unsold private residential units coming from projects that have obtained planning approvals.
With a monthly household income of up to $14,000, purchasing a mass market private condominium is not out of the question; whilst those in the lower income bracket can easily take the HDB BTO route. Thus, amid the plentiful choices that a buyer has, are ECs still a relevant scheme in today’s market?
Good and steady demand for ECs
As an asset class targeted at the “sandwiched” class, ECs come with the qualifying buyer eligibility criteria that are similar to public housing and also resale restrictions that are partially lifted 5 years after the project’s completion (can resell only to Singaporeans or Singapore Permanent Resident (SPR) buyers). These resale restrictions are fully lifted 10 years after the project’s completion.
Besides satisfying the monthly household income criterion of not exceeding $14,000, applicants must purchase an EC either by forming a family nucleus or with other singles if they are at least 35 years old. Only Singaporean couples and Singaporean / SPR couples may purchase an EC unit. Also, buyers have to fulfill a mandatory five-year minimum occupation period (MOP) before they are allowed to rent out the whole unit or sell off the apartment. Despite these restrictions, ECs come with a full suite of condominium facilities and are physically indistinguishable from private condominiums in terms of design and physical outlook.
In the recently concluded land tender for the EC site at Anchorvale Lane, located next to the Punggol Reservoir and near the Sengkang Riverside Park, there were a total of 16 bids put in by developers. The plot, which can yield about 630 units, attracted the highest number of bidders for an EC site since the Yuan Ching Road site (now Lake Life EC) in July 2013. Land hungry developers are optimistic of the outlook for ECs and expect the market to be able to soak up most of the remaining available units by the time they are ready to launch the project in late 2017 or early 2018.
So far in 2016, we have seen good and steady demand for ECs. According to data from the Urban Redevelopment Authority (URA), for the first seven months of 2016, 2,697 EC units were sold by developers. This has already surpassed the total 2,550 units sold by developers for the whole of 2015.
In addition, some of the best-selling projects this year have been ECs. Wandervale and Treasure Crest were two of the most successful EC launches since 2014. Wandervale, the first EC to launch in 2016, sold some 50 per cent or its 534 units on the opening weekend; whilst in July, Treasure Crest sold some 72 percent of its 504 units on the first weekend. Existing EC projects have also been seeing sustained interest from buyers, with developments such as Bellewaters, The Vales and the Terrace seeing a steady stream of buyers even though they are not new launches.
Evidently, despite competition from mass market condominiums and public housing, ECs are still proving to be a practical and popular choice amongst buyers. Whilst the pace of sales for some EC projects are faster than others, it is important to note that even for the EC projects that do not do as well initially, they do see a steady and sustained pace of sales over the development period; such that by the time the Temporary Occupation Permit (TOP) for the EC project is attained, the majority of the units would have found buyers.
ECs buyers are rational and practical
Typical EC buyers are either first-timers buying their matrimonial home; or families with young or teenage children that are upgrading from HDB flats. They are buying for owner-occupation and not with the immediate intention to rent it out; as this option is only open to them after the first 5 years of occupation. As such, the buyers behave very rationally and rarely do they buy on impulse. Whilst some jostle with other buyers for choice units during the initial launch, others commit on their purchase only after they have made their rounds and have thoroughly researched the market.
For most EC buyers, the main appeal of ECs is the condominium address and lifestyle but at a cheaper price. ECs are typically priced $750 to $850 per square foot whilst mass market condominiums within the vicinity are likely to be $1,000 to $1,100 per square foot onwards. This puts the EC buyer on the immediate price advantage as he is essentially buying a product that has a similar look and feel of a mass market condominium, but at a cheaper price. After the minimum occupation period of 5 years, the EC unit can be resold on the secondary market to Singaporean or SPR buyers whilst 10 years after completion, the EC unit can also be sold to foreign purchasers. So, depending on the state of the market at the relevant point in time, the EC buyer already enjoy a larger headroom for capital gain as compared to someone who had bought a mass market condominium unit at around the same time as the EC buyer.
Further, for eligible first-time EC buyers, they have the added advantage of using the CPF Housing Grant of $30,000 to help pay for the purchase price. There are no housing grants available for private condominiums.
The second reason is a practical one. EC buyers are owner-occupiers and they are purchasing the unit to start a family or to house a family.
Majority of EC projects are designed to comprise mainly 3 and 4-bedroom units; with the exception of some that may have a small selection of 1 and 2-bedroom units. Comparatively, a mass market condominium may have more numbers of smaller units than larger units as they also target the investor buyers that prefer a lower price quantum.
If so, the living environment becomes quite different when you compare an EC with a mass market condominium. In an EC environment, you are likely to find the majority of the residents as local families (around the same age group) with children; whilst in a private condominium, it is likely to be quite diverse.
The third reason is the living space; and size matters when you have to house a family. Treasure Crest EC’s 3-bedroom units are sized 958 to 1,249 square feet whilst its 4-bedroom units are 1,345 square feet. Comparatively, private condominium’s 3-bedroom units may be about 880 to 1,100 square feet and their 4-bedrooms may not exceed 1,300 square feet.
A matter of choice
A buyer who is eligible to buy an EC could also choose to stay in public housing, which is more affordable. Alternatively, private housing is also a viable option, albeit a more expensive one which might require taking up more debt for a longer period. Whatever the choice, there is no “correct” housing type to buy. It all depends on the buyer’s preference, financial ability and household needs.
Ultimately, by introducing ECs into the market, the government is providing buyers with another housing option to choose from. With more variety in the market, buyers then can choose the type of housing that best suits their needs, rather than be limited to only public or private housing.
Herein lies the relevance of ECs.
By Eugene Lim, Key Executive Officer and Seah Yao Hui, Assistant Manager, Research
