Updated: Sep 6, 2020
Executive Condominiums (ECs) are a unique class of housing - they're HDB properties for the first 10 years, and become fully privatised after that.
But can the profitability of ECs match up to those of private condos?
Let's take a look at the figures over the last 10 years.
No ECs other than La Casa were completed (i.e. received Temporary Occupancy Permit) between 2008 to 2013. This is because the Design, Build, and Sell Scheme (DBSS) was meant to replace the EC scheme in 2008, and EC land sales were halted.
The policy later changed, with EC land sales resuming in 2010. DBSS was ultimately suspended in 2011, while the EC scheme survived.
Between 31st January 2010 to 31st January 2020 (the day this article was written), EC prices in Singapore have risen from $649 per square foot, to $932 per square foot - a 43.6 per cent increase over a decade.
(Data is sourced from the 99.co researcher tool)
In terms of average price for ECs, you would have paid around $786,000 for an EC unit back in 2010.
Today, the average price of an EC unit has appreciated to about $1.04 million.
While this is a broad picture (we're not looking at specific unit sizes or locations), it does mean that EC buyers in 2010 are sitting on average investment gains of about $254,000; or an annualised return of about 2.8 per cent per annum.
Let's take a look at how the condo market has performed in the same period.
Across the island, condo prices - on a per square foot basis have appreciated from an average of $1,170 per square foot, to about $1,777 per square foot today - that's about a 51 per cent increase over the past decade, beating ECs.
But if we look at the average price of a condo unit, we can see that it trails behind ECs in growth:
Over the past decade, the average price of a condo in Singapore has risen from $1.43 million, to about $1.84 million - a more modest appreciation of about 28 per cent.
One reason for the significant increase in price per square foot, but lower overall prices, is due to the increasing popularity of smaller units.
Smaller units have a lower quantum but a higher price per square foot, and were snapped up quickly post 2013 among new investors and younger buyers as the Total Debt Servicing Ratio implementation resulted in lower affordability among the general population.
The EC / Private Property Price Gap
The track record and dominant theory is that, when ECs become fully privatised, they significantly narrow the value gap with their private counterparts.
After all, ECs are also built by private developers, complete with gyms, swimming pools, BBQ pits, etc the facilities commonly found in a condominium.
However, a counterargument that's often raised is the psychological component.
Some might say that an EC would never be worth as much as a private condominium even after it privatises.
Well, let's take a look whether that is true.
Looking at the trend over the past 10 years, we can clearly see a price gap between both ECs and private condos.
Back in 2010, average condo prices were about $1.4 million, while EC prices - as mentioned above - averaged $786,000.
That was a significant price gap of more than 80 per cent.
In 2020, this price gap narrowed by about 6 percentage points.
The average price of an EC ($1.04 million as mentioned above) is now closer, percentage wise, to the average condo price of about $1.8 million.
On the one hand, ECs have narrowed the price gap with their private counterparts, as more of them become fully privatised.
On the other hand, there seem to be a psychological inclination to consider ECs a lower cost housing option to private condos.
Diving alittle deeper, let’s take a look at how some recently privatised ECs have performed since their launch.
La Casa Executive Condominium in Woodlands
As an example, let's go a little bit further back than 2010 (we have to do this because, as I mentioned earlier, no ECs besides La Casa TOP'd between 2008 and 2013).
The first example we'll look at is La Casa, the very last EC to get its TOP in 2008.
It would have been privatised sometime last year:
Capital growth has been pretty decent with La Casa starting at just $383 per square foot in early sales, and reaching prices of about $713 per square foot today.
The average price of a unit there has risen from $424,000, to $829,000 (up around 95.3 per cent).
Take note however, that it's peak years may have passed with prices steadily declining since it's MOP in 2013.
The Quintet Executive Condominium in Choa Chu Kang
Another EC that was privatised at a period close to La Casa is The Quintet (this is also an Outside Core Region (OCR) EC).
The Quintet was privatised sometime around 2017.
Prices have risen from around $370 per square foot initially, to about $730 per square foot today - an increase of over 97 per cent.
In terms of price, the average unit in this development has more than doubled - from about $504,000 to an average of $1.06 million today (about 112 per cent increase).
Take note too, that since the peak in 2013, The Quintet seems to be on a similar decline, albeit less so in the recent 4 years.
For comparison sake, let's look at one last EC, which had its TOP in 2005 (it would have been privatised around 2016).
The Esparis, at Pasir Ris Drive
Prices have now risen to $758 per square foot, up from $401 per square foot back in 2005. That's an 88.9 per cent increase.
In terms of price, the average unit in The Esparis costs just around $475,000 in 2005. Today it has more than doubled to about $995,700 - a close to 110 per cent increase.
The peak years seems to have passed too in 2013, but interestingly in the recent 4 years, prices have gained around 10% compared to the previous 2 examples.
Whether it continues to strengthen remains to be seen but chances of downside price pressures are higher given that it has reached its 15 years old mark.
Looking ahead, brand new executive condominiums are likely to continue appreciating in value while resale EC buyers would have to be cautious about when they enter the market.
Also, the quantum of growth in the brand new segment may be less than what we have seen in the past 10 years; given the stricter cooling measures put in place in 2013.
Brand new ECs, being a housing option tailored for middle income Singaporeans, are likely to remain a high growth segment in the next decade, given their popularity and unique evolutionary process towards privatisation.
Moreover, from point of purchase to eligibility to sell at MOP, which takes approximately 8-9 years, the period of holding provides ample runway for inflation and fundamentals to support price increments.
With further benefits such as ABSD remission, minimum cash outlay of 5% and a max 75% loan eligibility for HDB upgraders, government policy measures seem to be subtly funneling Singaporeans towards this profitable housing choice, in a bid to help them climb further up the wealth ladder.
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Stuart Chng, Senior Associate Executive Director of OrangeTee & Tie, is a renowned leader and personality in the real estate industry.
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