Buying ECs – Is it worth it?

With a significant price gap between new ECs and suburban condos, ECs enjoy a higher safety margin and bigger potential for capital appreciation.

The government recently announced to ease property cooling measures with the existing holding period and rate of sellers’ stamp duty on 10th March 2017. This is got many property watchers talking and they were simply surprised by the move.

Although this does not impact the executive condominium (EC) market directly, it is seen that it should have a positive impact in the market with spillovers from the recent boost in sentiment for the private residential market.

Demand surge for ECs

To put things in context, demand for executive condominiums have seen a rise in 2016 with buyers taking up over 3,999 units, that marks an increase of over 56.8 per cent compared to 2015’s sales of 2,550 units. This increment is likely due to the improved sentiment with the non-landed private residential market because buyers have started to return to the market with increased belief that the private residential home prices are stabilising.

Notably, the top two selling EC projects in 2016 were Wandervale and Treasure Crest, which sold a total of 1,001 units.

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Price – Executive Condominiums vs Private Condominiums

Typically, the new Executive Condominiums are often sold at a lower price comparing to new private residential condominiums. At the time of this article, this price difference over 20 to 30 percent compared to the private homes.

However, buying an Executive Condominium does come with its own rules and regulations. There is a monthly household income ceiling of $14,000 that buyers have to adhere to. Buyers must also form a family nucleus, comprising two Singapore citizens, or a Singapore citizen and a Singapore permanent resident (PR). Lastly, they will have to fulfill the minimum occupation of five years before they can sell in the resale market to Singaporean or Permanent Residents.

• Monthly Household Income Ceiling: Cannot exceed $14,000
• Form a Family Nucleus comprising 2 Singaporeans or 1 Singaporean/1 Permanent Resident
• Minimum Occupation of 5 years before selling to Singaporeans/Permanent Residents
• Considered fully privatised after 10 years from completion

So, what’s so special about buying one?

Since their inception in 1996, ECs have enjoyed success on the whole. Most EC projects tend to sell out within two years. However, in early 2016, there were mounting concerns about the state of the EC market, with launched but unsold inventories of EC units soaring to a historical peak of 4,007 units in April 2016. But EC sales started to recover soon after and the unsold inventory fell to 2,088 units in February this year.

Unlike its private condo counterpart, the supply of ECs is more limited, and the only source of new EC sites is the Government Land Sales Programme (GLS). There have been no new EC sites on the confirmed list in the past two GLS exercises. Bearing in mind the 15-month waiting period from acquiring the site and market launch of the project that developers have to adhere to, ECs will be in short supply in 2017 and 2018. Only three new EC projects are expected to be launched this year, compared to five last year.

The main driver of EC demand is the significant price gap between this housing form and suburban private condos. With a lower purchase price and similar characteristics between ECs and private condos, ECs enjoy a higher margin of safety and a bigger potential for capital appreciation. The availability of government subsidies helps to underpin this advantage. Furthermore, the sandwiched class has few alternatives with the suspension of the DBSS scheme.

Final words

ECs still offer an attractive value proposition for eligible owner-occupiers, given the significant price gap, government grants, and the lack of alternatives for the sandwiched class.