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March 11, 2021

Should I Buy an Executive Condominium?

By PropNex Research

Information and statistics updated as at February 24, 2022

Executive Condominiums (ECs) have been a part of the Singapore housing landscape since the 1990s. They tend to be highly sought-after whenever new EC projects hit the market. A big reason for the robust demand lies in their affordability, being much cheaper than private condos.

As a public-private housing hybrid, ECs - which are heavily subsidised by the government – are meant to cater to the needs and aspirations of the ‘sandwiched class’, whose earnings exceed the income ceiling for HDB flats but may feel financially stretched to purchase a private property.

To be sure, ECs are value-buys but they do come with strings attached. First off, not everyone can purchase an EC unit from developers and you should definitely speak to a PropNex agent to find out more about these eligibility criteria and whether you meet the requirements to snag an EC.

Then, there is the need to fulfil the 5-year Minimum Occupation Period (MOP) during which an EC owner will not be able to lease or sell the unit. After the MOP period, the unit can be resold to Singaporeans, and an EC project is only fully privatised after 10 years, meaning that they can also be sold to foreigners.

But these rules hardly deter eligible buyers from entering the EC market and here’s why.

Affordable entry point into private housing market
As former National Development Minister Khaw Boon Wan aptly put it back in 2013 - buying an EC is like buying a Lexus at the price of a Corolla. Indeed, it presents the opportunity to buy a ‘private-property-in-waiting’ while still enjoying government subsidies.

Comparing the median unit price trends of new ECs and newly launched non-landed private homes in the Outside Central Region (OCR), data showed that ECs were 36% cheaper than mass market condos in 2021 (see Chart 1). Even though prices of ECs started to climb from 2017, due to higher land cost, they are still considerably more affordable than private condos. At the time of writing, EC prices typically trend around the $1,100 psf plus level.

Chart 1: Average Transacted Unit Price: Non-landed OCR new sales vs ECs

Source: PropNex Research, URA Realis

In pricing ECs, developers are aware that buyers’ earnings must not cross the monthly household income ceiling of $16,000, and they are subject to a 30% Mortgage Servicing Ratio (MSR). The MSR refers to the portion of the buyer’s gross monthly income that goes into servicing all property loans. Together, the income ceiling and the MSR will affect affordability of ECs – set too high a price and the developer risks pricing many potential buyers out of the market. This also helps to keep EC prices fairly stable.

Potential for capital gains in the future
In any property purchase, the entry price plays a direct role in determining the prospects of future gain or even a loss upon resale. With ECs, some buyers feel that the relatively more affordable sale price at launch may provide some potential for future upside, when the EC unit is subsequently sold on the resale market as a privatised development from the 11th year onwards.

Naturally, most people will hope for a buy-low-sell-high scenario, but that is never guaranteed and much will depend on the state of the market and economy at the point of resale. That said, many ECs owners have raked in a tidy profit from reselling their home. In 2021, some of the biggest EC transactions came from projects such as Citylife @Tampines, 1 Canberra, and Heron Bay.

Of the Top 5 EC resale transactions by quantum in 2021, the top deal at Citylife @ Tampines fetched more than $1 million in profits for the owner (see Table 1). The unit on the 15th floor was resold for $3.288 million in October, turning in nearly $1.4 million in capital gain after a holding period of about 9 years. Meanwhile, the owner of a 12th floor unit at the same project, which recorded the second highest deal in 2021, took a little less than $1 million in profits, after selling the property in October. Another unit on the 14th floor in the same project was sold for $2.3 million in September, and raked in capital gains of about $880,000.

Table 1: Top 5 EC Resale Transactions by Quantum in 2021

Source: PropNex Research, URA Realis

While it is true that EC new launch prices have crept up in recent years, private condo prices too have been resilient and have inched up. Given the low entry prices of new launch ECs, there remains an opportunity for decent gains years down the road when the EC becomes fully privatised. Chances are the EC resale prices then, will likely be supported by the prices of surrounding private condos.

In fact, some of those who bought into an EC project at the initial stage of the launch may already be sitting on paper gain as prices generally nudge upwards as the sales momentum gains traction. For instance, the average unit price at Piermont Grand EC which launched in July 2019 was $1,100 psf at time of launch, but rose to $1,196 psf as of Q4 2021. Over at Ola EC, the average transacted price was $1,133 psf during its initial launch in March 2020, it has since increased to an average unit price of $1,230 psf as of January 2022, according to URA Realis caveats lodged.

For many Singaporeans, buying an EC is a way to enjoy the condo living experience without stretching themselves too thinly, budget-wise. In addition, those upgrading from HDB flats do not have to pay the hefty additional buyer’s stamp duty (ABSD) when they buy an EC.

Taking a longer-term view, some buyers may feel that purchasing an EC gives them a greater peace of mind because they have the opportunity to put the development up for en bloc sale or apply to top up the 99-year lease, when the need to address the issue of lease decay arises in the future.

If you are thinking of buying an EC, there are several new options this year, apart from the ECs that were previously launched (such as OLA, Parc Greenwich, and Provence Residences). Come March, North Gaia at Yishun, located along Yishun Avenue 9 will be launching with 616 units. Still to come in the next few months will be the EC projects at Tengah Garden Walk and Tampines Street 62, which are slated to launch in the second half of 2022.

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