Executive condos: a winning proposition?

Original owners of earlier EC projects sit on healthy profits, while tough luck at the BTO ballot may spur demand

Aug 31, 2021



IT TOOK a then-record top bid of S$603 per square foot per plot ratio (psf ppr) for an executive condominium (EC) site in Tengah for the tie-up between City Developments and MCL Land to be awarded the site in early June.

The winning bid of S$400 million edged out the next highest bid by a hair's breadth, of just 0.03 per cent.

When the tender closed for the EC site in Tampines Street 62 last month, a new record price for EC land was set. A consortium comprising a Qingjian Realty and Octava Pte Ltd joint venture, and Santarli Realty clinched the site with the top bid of S$422 million or S$659 psf ppr, which was 1.4 per cent higher than the next highest bid.

Some 414 units or nearly 60 per cent of the 700-unit EC project Parc Central Residences were sold at an average price of S$1,177 psf on the first day of its launch in January.

As of July, new EC projects such as Parc Central Residences and Piermont Grand have sold over 90 per cent of their units. Real estate agency Huttons estimates that there are about 300 unsold units from launched EC projects as at Aug 23 this year.

The appetite from developers and buyers for ECs, which were introduced in the later part of the 1990s, appears strong.

The EC is a hybrid of public and private housing. Built and sold by private developers, ECs offer features of condominiums. A typical EC sits within a gated compound with security, and has amenities such as swimming pools, clubhouses, gyms and playgrounds.

The new EC project, Parc Greenwich, which is located near Seletar Hills, boasts two clubhouses. It will have 52 wellness and lifestyle facilities spread across eight recreational zones.

However, buyers of EC units are subject to certain regulations that apply to HDB flats. For example, couples need to comprise two citizens or a citizen and a permanent resident to be eligible to buy a new EC unit. The monthly household income of buyers must not exceed S$16,000. Subject to certain conditions, buyers of new EC units can get CPF housing grants.

For new ECs, there is a minimum occupancy period of five years applicable from project completion, during which the EC unit cannot be sold or rented out whole. After five years, the said EC unit can be sold to citizens or permanent residents, or rented out whole. After 10 years, the EC unit can be sold to any one including foreigners.

The draw of ECs probably lies in their more affordable pricing relative to condos. A new EC unit is priced at around 20 per cent below that of a comparable new condo unit.

In Tampines, the median prices of units sold last month at condo project Treasure at Tampines and Parc Central Residences were S$1,381 psf and S$1,168 psf respectively.

While a buyer of a new EC unit has to hold the unit for at least five years, this need not be onerous as buying property is a long-term investment. For buyers of private homes, the Seller's Stamp Duty applies if units are sold within three years of the date of purchase.

If private home prices rise and a buyer has patience, buying a new EC unit is a winning proposition. One gets into the private residential property market at a more affordable rate and may get some CPF housing grants.

Healthy profits

After five years of occupation, one can sell the EC unit to a slightly restricted pool of buyers. One can also rent out the entire EC unit, with tenants likely to be indifferent between renting an EC or a condo unit. After 10 years, resale restrictions lift and one's EC unit becomes essentially the same as a condo unit.

Owners of earlier EC projects, who bought at the time of launch, sit on healthy profits. Units of The Floravale at Jurong West fetched a median price of S$695 psf based on resale transactions in Q2 2021.

Transacted prices in Q2 2021 are nearly double the prices when this EC was first launched for sale in Q2 1999, broadly in line with the performance of the price index of private non-landed homes tracked by the Urban Redevelopment Authority (URA).

Whether a buyer in a particular EC project makes a larger gain relative to the price performance of non-landed private homes in general can depend on factors such as location and quality of development.

At Bishan Loft, many initial buyers of the EC units in Q3 2001 paid around S$400-S$450 psf. Units in this development have been transacted at over S$1,100 psf this year. The gains of initial buyers in this EC would likely exceed the over 80 per cent rise in URA's price index of private non-landed homes between Q3 2001 and Q2 2021.

As ECs sit on leasehold land, some may worry about land lease decay as ECs age. However, older ECs can possibly explore collective sales just like old leasehold condos.

Tough luck and BTOs

Perhaps buyers who are eligible to buy HDB Build-To-Order (BTO) flats would be weighing the choice of getting a new EC unit instead.

Naturally, buyers note that a HDB BTO flat costs much less. By buying a HDB BTO flat, one saves on financing costs, frees up funds to earn returns from investments, and accumulates savings to help fund the future purchase of a condo unit. If luck shines, one may snare a desirable HDB BTO unit, thereby getting a good place to call home and a chance to make substantial capital gains.

The trouble is, one may not succeed in these times in balloting for a HDB BTO unit of one's liking.

In this month's BTO exercise, the 459 four-room flats offered in Hougang attracted 11,400 applicants, with more than 18 first-time applicants per four-room unit.

However, buying a new condo unit may be out of reach for some amid rising private new home prices, particularly in the Outside Central Region, where absolute sums involved are generally lower.

HDB resale prices are also rising, with more resale units being transacted for over a million dollars each.

So for those who fear that private home prices will gallop away, getting into the private home market via the EC route as soon as possible can make sense.

Conversely, a buyer of a new EC unit will be caught wrong-footed if private home prices fall due to cooling measures introduced by the government or economic weakness.

As of Q2 2021, there are around 34,084 EC units compared with 306,199 units of condos and apartments. The supply of uncompleted EC units in the pipeline stood at 4,113.

Keen competition is expected for the EC site on the confirmed list of the H2 2021 Government Land Sales Programme at Bukit Batok West Avenue 8, which can yield around 375 units.

Developers, who are hungry for sites, may view EC projects targeting a local market as being relatively low risk.

Bidders for the Bukit Batok EC site are likely to be aggressive as demand for new EC units should be firm amid rising private home prices.

As the economy recovers, gains in the labour market, particularly in one that prioritises the hiring of locals, will support demand for ECs. The prevailing low interest rates will help buyers in financing the purchase of their dream homes.

Are the cards stacked for a strong showing when the 496-unit Parc Greenwich from Frasers Property opens for booking on Sept 11?

As long as many people yearn to own a private home, be it for the chance to enjoy capital gains over time or to fulfil personal aspirations, ECs can offer a viable entry route at a discounted price.

Underpinned by buy-in from developers and purchasers, the uniquely Singaporean concoction called the EC looks to have staying power. Policy-wise, there should be support for ECs as this hybrid helps aspiring young Singaporeans towards owning a private home.