Sales at new EC projects have been sporadic. (Photo: City Developments Limited)
More Singaporeans are now eligible to buy EC units since the income ceiling was raised, but this hasn’t translated into better sales.
By Romesh Navaratnarajah
In August 2015, Prime Minister Lee Hsien Loong announced during his National Day Rally speech a slew of new measures meant to impact the real estate market. This included raising the income ceiling for couples buying executive condominium (EC) units from $12,000 to $14,000. As such, higher-income households (making up another six percent of the population) could now qualify for subsidised housing, and would not have to overstretch themselves to buy private property.
At the time, analysts felt the changes would reverse the slump in the EC market, which had seen the number of unsold units rise to an unprecedented 5,200 units as of July 2015, according to figures from CBRE.
It didn’t help that launch prices for most EC projects were hovering around $800 psf for seven quarters before the income ceiling was raised, while the private residential property index fell by 7.2 percent during the period.
But five months after the policy kicked in, the EC market seems suppressed rather than stimulated. Only 124 units were sold by developers in December 2015, down by about 33 percent from the previous month, revealed a JLL report citing data from the Urban Redevelopment Authority (URA).
The report stated that for the entire year, an estimated 2,562 new EC units were sold, compared to the 3,750 units launched.
Further exacerbating the supply glut is the recent launch of two EC sites, one at Yio Chu Kang Road under the confirmed list of the second half 2015 Government Land Sales (GLS) Programme, and the other at Sumang Walk in Punggol under the reserve list. Both are expected to yield a total of 1,300 housing units.
Great expectations
Ong Teck Hui, National Director, Research & Consultancy at JLL, said: “One of the reasons why EC sales have remained slow despite the income ceiling hike is the mismatch between prices and buyers’ expectations.
“Many new ECs are currently marketed at around $800 psf on average, about 15 percent higher than in 2011. With falling private residential prices, some potential EC buyers would be mulling over the possibility of buying private homes instead of ECs, especially with the narrowing price gap between the two.”
The mortgage servicing ratio (MSR) cap of 30 percent for ECs has also led to softening demand, with one developer telling PropertyGuru that the MSR limit for ECs should not be the same as HDB flats, because ECs are a public-private housing hybrid, and therefore, the MSR should be capped at 45 percent.
PropNex agent Edmund Ee agrees that this measure should be tweaked to help homeowners looking for a bigger place.
“With the MSR at 30 percent, HDB upgraders who want bigger units are being limited by the loan amount and are deciding to hold off on their purchases, since upgrading to an EC would mean a smaller living space.
“If the MSR is at 45 percent, it’s definitely good news for eligible buyers, as they will be able to buy a bigger unit.”
But Ong explained that the current MSR rate is a policy consideration and should be kept in place.
“With a lower MSR, buyers will borrow less, which means that EC units will have to be priced accordingly. It is part of the overall plan to keep housing prices in check, maintain affordability and prevent excessive borrowing.”
Another concern among HDB upgraders is the resale levy of up to $50,000 for EC units bought directly from developers, but Ee reckons that buyers will probably consider projects where the land sales were launched before 9 December 2013, when the ruling took effect.
With EC buyers becoming more price-sensitive, Ong does not foresee a pick-up in transactions in the coming months.
“Under current market conditions, a strong sales take-up at launch is quite unlikely, so new EC projects are just trying to achieve gradual and steady sales progress in the months after launching.”
Housing the sandwich class
Despite what the figures show, Ee has observed more first-time buyers from the “sandwich class” (within the $12,000 to $14,000 income bracket) visiting EC showflats since the income ceiling was raised. “They prefer ECs as the room sizes are generally bigger than private condominiums,” he said.
URA data revealed that the top-selling EC projects in December were The Brownstone in Sembawang, which sold 20 units at a median price of $814 psf, The Terrace at Punggol (15 units at a median price of $788 psf), and Sol Acres in Choa Chu Kang (14 units at a median price of $796 psf).
Ee believes these projects reported better sales due to their proximity to public transportation.
“The Brownstone is close to the upcoming Canberra MRT station on the North-South Line, while Sol Acres is near the new Bukit Panjang MRT station on Downtown Line 2. Buyers know that there is a premium to pay for being close to an MRT station, but the price is definitely lower compared to private condos nearby.”
However, Ong thinks the economic slowdown will continue to put pressure on the market, and the only way to revive demand is to price units more attractively.
More launches coming soon
In 2016, a number of new EC launches are expected to take place, including Wandervale at Choa Chu Kang Drive, The Visionaire at Canberra Drive and Parc Life at Sembawang Avenue (refer to Figure 2).
Based on the land prices, developers are expected to price these three projects more competitively, with estimates ranging from about $740 psf to $820 psf, noted Ee.
“As developers become more price-sensitive, hoping for better take-up rates, new EC prices should be at a good entry level.”
He added that tough competition from the new supply will see developers offering discounts for EC projects that are nearing completion.
“Looking at the upcoming launches, I do not foresee a sharp spike in the sales transactions of EC units as there is still ample supply in the market. EC transactions should reach around the 2015 level of over 2,500 units sold.”
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