Like all HDB regulated properties, an EC can only be put on the open market after you have met the five-year Minimum Occupancy Period (MOP).
So now that you’ve gotten there, what’s next?
Is it time to sell and reinvest in another property, or hold on?
Here’s how i would approach this topic rationally:
1st, you need to be clear why you would sell right after MOP, instead of after privatisation of the EC at the 10th year mark.
1. Is it the herd instinct of following your neighbours who are cashing out that's influencing you?
2. Are you afraid that you can no longer realise your profits in the future?
3. Or are you looking for a way to realise the gains immediately and recycle your profits into another higher potential investment property?
A brief walk down memory lane
When ECs first emerged on the market in 1999 (Eastvale in Pasir Ris from $300+K!), the common consensus was that owners should wait until the development fully privatised (after the 10th year) before cashing out their profits for maximum gains.
Today however, it’s increasingly common to see owners selling soon after MOP, to realise and recycle their profits earlier into 2 or more properties.
Here are some points to consider before you make your decision.
5 Points To Consider Before Selling Your EC After MOP
1. How many units are selling in your EC?
2. What is the current supply situation of newly TOP (Temporary Occupation Permit) condominiums in your area?
3. Are there significant infrastructure growth plans in your neighbourhood?
4. Is your next property purchase likely to offer better returns?
5. Are you in an economic downturn?
1. How many units in your EC are selling at the moment?
Generally when an EC reaches MOP, many owners start looking to cash out.
Some cash out to upgrade to a bigger place as their salaries have increased since 8-9 years ago since balloting for the unit.
Some cash out and downgrade back to a HDB flat and fully pay it off with the profits they earn.
Some cash out via selling or equity loans in order to invest in multiple properties or other instruments.
Initially, it can be tougher to get a good price especially if your EC is a large development with many neighbours selling.
There are ample choices for buyers to turn to and the more urgent sellers will always offload first while the ones who can wait will subsequently see much less competition and better bargaining power.
I have witnessed this happen many times over and it can take between 6-9 months for supply to stabilise and buying demand to exceed supply.
2. What is the current/upcoming supply of newly TOP (Temporary Occupation Permit) condominiums in your area?
Watch out for newly TOP supply of condominiums in your area. Whenever there is a supply of newly TOP condominiums or upcoming ones, you may face stiff competition from them for the same buyer base.
The best situation you can find yourself in as an MOP EC owner is to be in a neighbourhood of older condominiums and surrounded by a surge of MOP BTO flat owners coming on stream.
More often than not, the catchment of HDB upgraders will be looking at upgrading (and similarly realising their profits from their BTO/DBSS) to a private home near them as their family has settled into the area.
Case in point: The Canopy EC in Yishun is highly sought after at this point of writing and owners are cashing out with significant profits as many BTO and DBSS owners in Yishun Greenwalk and Adora Green reach their MOP and upgrade to private homes.
Similarly, with BTO flats in Fernvale Link reaching their MOPs recently, Parc Botannia which TOPs end of 2020 has seen very healthy sales volume and recently sold out.
**A study on the MOP supply island wide can help you with better risk management investment decisions.
3. Are there significant growth plans coming up in your neighbourhood?
Before you decide to sell, always do your research on the upcoming plans for your neighbourhood via the URA Master Plan. You’ll want to have clarity not only on the new location you’re aspiring to buy, but your existing one as well.
Investing in where the Singapore government is is one of the safest and most time tested method in property investment.
1 of the 4 investment entry signals i've written about before is called the "Growth Story". Read more..
Infrastructure growth and development plans in the mid to long term, such as new MRT stations, shopping malls, tech parks, townships etc can make it easier for you to sell your executive condo at a better profit and safeguard your downside risks.
Sometimes, just waiting another year or two for developments to complete can mean significantly higher returns on your investment.
Ideally, your property agent should also conduct his own research and advise you on the best time to list your property and the risks and returns you face by putting it up for sale now versus in a couple of years' time.
4. Is your next property purchase likely to offer better returns?
Counting your profits and wanting to realise them is a natural lure for owners to sell their properties.
However, before you get too excited, it is prudent to study and weigh your next available options first.
Simply selling without an idea of where to park your war chest is a quick way to misery especially when there is still much steam left for capital growth in your current EC or your next property isn't well researched and selected to provide you better investment returns.
Typically, executive condominium sellers cash out to invest into a private property that is either nearer to town, their in-laws, get a bigger house for the family or a better location nearer to the MRT and transportation hubs.
It is important that you consider both the domestic and investment aspects as the right decision will greatly impact your retirement plans down the road.
5. Is it an economically favourable time to sell?
In general, you should sell in a down market only if you’re in some sort of urgent trouble (e.g. job loss) or have a lot to gain by letting go of your current property to arbitrage on another one selling at a greater discount.
Owner occupier properties such as ECs generally do not correct as much as the fundamental reason for holding it is more existential than for investment.
If the market is correcting and you are holding a property worth $1M, you might want to sell (Or draw out an equity loan at low interest rates) in order to take advantage of larger discounts in a higher priced property.
Generally in a downturn, the more expensive the property, the larger the price correction as investors bail out.
A correction of 10% in a $3 Million property will easily mean $300K off the price vs $100K in a $1 Million property. When a recovery comes about, you stand to gain significantly more than by holding on to the original property through the crisis.
It is during such periods where buyers dry up, that many of the best deals surface in the market (We might just be cruising into one at this point of writing with the COVID-19 cases increasing again).
Besides these, there are certain periods – such as right after new cooling measures – when the market will have a knee-jerk reaction, and sellers should adopt a “wait and see” approach.
It is almost always better to wait out the storm as property markets are cyclical and they will ultimately reward the patient ones with holding power.
To summarise, don’t think of MOP as a “magic number of years” after which you must rush to sell.
We’ve been conditioned to think this way because we’re bombarded with advertisements, flyers and many articles online, touting the benefits of cashing in after MOP.
In reality, the right time to sell a property shouldn’t just revolve around your MOP.
The right time to sell should be based on market fundamentals, a clear and well thought through investment road map, and your family’s needs and priorities.
To put it simply: if you didn’t have an MOP that you just met, would you even be thinking of selling?
That answer is probably the one you should follow.
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Stuart Chng is a Senior Associate Executive Director of OrangeTee & Tie, and a renowned leader and personality in the real estate industry.
He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.
Professionally, he is a licensed real estate agent, investor, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications. Throughout his career, he has helped many clients grow their wealth through selecting great property investments and managing their portfolios actively. Read his clients' reviews here.