Wandervale was the first EC to launch in 2016. (Photo: Yasmin Beevi)
Executive condominiums are a unique hybrid property class, and are popular due to the lifestyle they offer at more affordable prices. The market has been struggling over a number of quarters, but there are signs of optimism on the horizon ahead. We give you our Guru View.
By Chang Hui Chew
For many Singaporeans, executive condominiums (ECs) offer the best of both worlds: a product similar to that of private condominiums, with a gated community, lifestyle amenities like swimming pools and gymnasiums, as well as access to some of the subsidies offered by the state to HDB flat buyers.
This makes them an ideal choice for HDB upgraders, whose incomes and needs have increased, and want an upgrade in the quality of housing for themselves and their families.
For many in the sandwich class – who earn too much to afford a HDB flat, but find it a stretch to afford a private condo – ECs are often the best solution for their dilemma. Pricing is affordable enough that sandwiched Singaporeans can pay for it, without taking too onerous a mortgage.
During 2015’s National Day Rally, the Prime Minister announced the raising of the income ceiling for ECs from $12,000 a month to $14,000. This allowed more of those in the sandwich class to be able to afford ECs, and increased the buyer pool for this property class by six percent.
In recent years however, the EC market has slowed somewhat, on the back of a cooler property market. We can see from Figure 1 that the low point for the EC market came in 2014, when it saw fewer than 200 units move per quarter over two successive quarters.
Since then, the EC market has seen a slight recovery, with most quarters seeing more than 500 units move. We also saw a slight anomaly in Q3 2015, with over 1,200 newly launched units moved in a single quarter, more than the total volume sold in 2014. This was likely due to the lifting of the income ceiling, which led to latent demand immediately moving in to absorb supply.
However, what accompanied the modest recovery in transaction volume was also a decline in median psf prices. Prices for new EC sales fell from a median $825 psf in Q1 2015, to its most recent level of $783 psf in Q1 2016, a drop of 5.1 percent year-on-year.
It is likely that the price drop has contributed to units moving. The general narrative among consumers has been that prices will fall due to the cooling measures, and many have adopted a wait-and-see approach. Hence, when prices fall, consumers are likely to consider re-entering the market, and will commit to purchases if prices reach a certain level they find comfortable.
An issue of supply
However, what plagues the EC market is more than just pricing. Vacancy rates for ECs remain high, despite gradually coming down over 2015 (see Figure 2), due to excess supply in the market.
At the start of 2015, the vacancy rate for ECs was at a high of 15.1 percent. This suggests that out of all the ECs completed, under one-fifth of units did not see individuals move in for owner-occupancy. As ECs need to be owner-occupied for five years before they can be rented out, it suggests that these were units that were not sold, and instead, remained empty after completion.
One of the primary reasons why ECs are in a state of oversupply is due to over-enthusiastic land sales by the state. Since 2010, there have been a total of 43 land sales, with a startling 11 in 2012, and another 10 in 2014 (see Figure 3).
Over the past five years, developers have continued to pursue land bids aggressively in this segment, even when cooling measures led to a dampening of buyer enthusiasm. The site on which Lake Life is currently being built, for instance, saw 16 bids, due to its choice location in Jurong East. Evia Real Estate won that particular bid, paying $272.8 million for the plot of land.
In 2015, developers were a lot more modest with their bids, with median psf price per plot ration (psf/ppr) reaching a low of $280. At the same time, the government also curtailed the release of land sites, putting up just three sites for tender, a sharp decline from 2014’s 10.
For this year, the state has indicated a maximum of three EC sites up for tender, with one site already successfully awarded. Another EC land parcel, located in Anchorvale Lane, is likely to launch for sale in June. The final site, along Sumang Walk, is in the Reserve List, where the tender and award process will only kick off if a developer indicates interest and meets the state’s reserve pricing.
It is a positive sign that the state is tapering down the EC land supply. This gives developers with unsold inventory time to sell their extant stock, and hopefully see strong levels of occupancy when they hand over keys to buyers.
Developers are still keen to enter and develop this segment. The two most recent land parcels saw 10 and 11 bids respectively, suggesting that developers are both bullish on the segment, and think the overall real estate market will recover when these respective projects launch.
Take-up going up
Recent EC launches have also indicated signs of optimism in the market. Wandervale, located in Choa Chu Kang Ave 3, was the first EC to launch in 2016. In the month of launch, developer Sim Lian moved more than half of the project’s 534 units.
For many HDB upgraders, there are signs that the HDB resale market is slowly moving past its trough, and will likely enter an upswing or even peak when it is time for them to sell their current units to move into the completed EC units.
Furthermore, given that the developers bought the sites at more conservative bids, there is a lot more leeway for upcoming launches to be set at lower prices to attract consumers. The key therefore, is for developers to price affordably.
Developers should also avoid reducing the sizes of units too much to reduce overall quantums while keeping up overall PSF pricing. ECs, unlike their fully private brethren, are meant to house families, rather than be leased out to tenants. If developers were to reduce room sizes further, a trend we have observed in our many show flat visits, it would become less feasible for the families to live there, regardless of the quantums developers might set.
Appreciating ECs
Many market insiders often recommend ECs as a property class for Singaporeans looking for long term capital appreciation. The barriers to entry are lower than for private property and the HDB provides access to various grants to increase affordability. After 10 years, the property will be privatised, and most believe that prices will achieve parity with private condominiums.
At a time when EC resale prices remain rather flat, a unit at Bishan Loft, launched in 2001, exchanged hands for a sum of $1.53 million. A high floor unit, it was the third time it had exchanged hands. At launch, this unit was sold to its first buyer for $631,289. This was a 240 percent appreciation over a 16-year period, translating to a Compound Annual Growth Rate of 5.69%.
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