Investors see opportunity in EC market

Higher income ceiling for buyers among factors for their popularity; privatised ECs remain highly sought after

The crowd at the launch of The Brownstone, a 638-unit EC in Sembawang, last year. Market watchers say the rising vacancy rates for ECs in recent years could be a sign that more homebuyers are beginning to treat such apartments as investments. PHOTO: CITY DEVELOPMENTS

The idea of buying an executive condominium (EC) as an investment appears to be gaining traction among homebuyers, even as the wider property market continues to trudge along at a snail's pace.

The Government's move last August to raise the income ceiling for those eligible to buy these public- private hybrid homes has made them more accessible to a wider pool of people.

Introduced in 1995, ECs were targeted at helping the growing "sandwich class" of graduates and young professionals meet their housing aspirations. The strata-titled apartments are built by private developers, and come with facilities similar to those in private condominiums.

But there are curbs on eligibility for new units much like those for Housing Board (HDB) flats.

Homebuyers must also fulfil a minimum occupation period (MOP) of five years before they can sell the unit.

Market watchers have noted that the rising vacancy rates for ECs in recent years could be a tell-tale sign that more homebuyers are beginning to treat such apartments as investment homes.

Meanwhile, privatised ECs, or those that have crossed the 10-year mark and can be sold without any restrictions, remain highly sought after. Some also continue to register considerable price gains, lending more weight to the case for ECs as investments.

The question is: do ECs really make more investment sense than private condominiums?


Last year was a good year for ECs - on paper. A total of 2,550 units were sold amid tepid market conditions, marking a 62 per cent surge on the 1,578 units sold in 2014.

But analysts agreed that the jump was mainly a result of new supply; seven EC projects with 3,750 units were launched last year. In comparison, only four projects with 2,505 units were launched in 2014.

Projects that performed well included Sol Acres in Choa Chu Kang, which sold 56.2 per cent of its units at the launch last year, noted Dr Lee Nai Jia, regional head of South-east Asia research at DTZ. The Amore in Punggol (50 per cent) and The Brownstone in Sembawang (53 per cent) were well-received as well.

"Most of these developments are close to LRT or MRT stations and are near established HDB estates, and thus enjoy demand from upgraders and children of HDB residents already living in the area," said Dr Lee.

But demand for new ECs, in fact, slowed from 2013 to 2015, going by the take-up rates for new projects at launch, said Mr Ong Teck Hui, national director of research and consultancy at JLL.

The average first month take-up for new projects last year was 20 per cent, against 39 and 59 per cent for those launched in 2014 and 2013, respectively. Mr Ong said prices of new ECs have "more or less plateaued at around $800 per sq ft, in tandem with slower demand", while prices of private condos have softened over the past two years.

There seems to be more demand for privatised ECs, said UOB economist Francis Tan. "How much profit owners can make depends on the EC's location and surrounding supply at the time of sale."


Like good wine, prices of ECs do appreciate and "catch up" with those of private condominiums after the five- and 10-year marks.

A recent report by OrangeTee noted that a new EC unit is typically sold at a 20 per cent discount to a new private condo, based on an analysis of a basket of comparable properties. "The large price gap at launch can be largely attributed to the sale restrictions imposed on ECs and the difference in land and construction costs," it said. "Unlike private condos, ECs still fall under the purview of the Government and developers have to be conservative in their pricing."

After the MOP, when the unit can be sold on the open market to Singaporeans and permanent residents, and at privatisation, when it can be sold to foreigners, the discount narrows to 9 and 5 per cent respectively, noted the report.

But it added that not all ECs are "sure win" investments at MOP, as profit-making still depends very much on the initial purchase price.

Of the 21 EC projects, 13 made a loss after five years, largely because they were bought before the Asian financial crisis, while the rest saw gains of more than 20 per cent.

But at privatisation, all the EC projects became profitable. "Based on historical data, first-hand owners of currently privatised ECs are sitting on considerable gains," said OrangeTee.


As with most other segments in the ailing property market, uncertainties prevail for EC demand. Mr Ong said the fortunes of the EC market remain tied to the state of the softening private residential market, as cooling measures continue to bite amid the economic slowdown.

"A sufficient price gap between private condos and new ECs has to be maintained in order for the latter to sell," he said, noting that while seven new EC projects are in the launch pipeline, they have relatively high land costs - ranging from $320 to $361 psf per plot ratio - which "would not give developers much room to moderate prices".

But he added that a stabilising HDB resale market augurs well for ECs as "stable resale prices would give HDB households more confidence in upgrading to ECs".

Although Mr Desmond Sim, CBRE head of research for Singapore and South-east Asia, expects market sentiment to be cautious, he is optimistic that ECs will remain attractive, especially for first- time homebuyers. "Going forward, with the slowing economy and rising interest rates, coupled with the large supply, there is a likelihood that EC prices would soften by another 3 to 5 per cent this year as developers make price adjustments to clear the units."

PropNex chief executive Ismail Gafoor said: "With the limited supply coming on-stream in 2016, the demand for ECs is expected to be strong with greater upside in the long term, as EC developers continue to offer improved design and features to attract buyers wishing to upgrade to a 'subsidised' private residential living."


For investors, ECs could hold several advantages, in that they are not subject to property curbs like the Total Debt Servicing Ratio (TDSR), said Mr Ismail. They also come with a "budget-friendly entry price" compared with mass-market condos.

Homebuyers with a long-term occupation objective would find ECs a viable option, said Ms Alice Tan, Knight Frank Singapore head of research and consultancy.

"(This is) given its better-quality offerings compared to public housing. It also comes with condominium-like facilities at a lower price compared to private homes."

But those with a short-term investment horizon may find ECs less compelling, due to restrictions such as the MOP, she said. ECs are unable to do for investors what private condos can when it comes to generating immediate rental yield.

For Madam Cynthia Yeo, 58, her three-room apartment at Hillview 128 serves as part of her and her husband's retirement plan.

"We bought the unit in 1999 because we wanted some passive income for retirement," she told The Sunday Times.

"The market isn't doing well these days, so the rental yield has gone down to about 3.5 per cent. But during the better years, it was able to go up to 4.5 or 5 per cent, which was good for us."

Knight Frank's Ms Tan noted that the quality and location attributes of private homes are "generally more superior compared to ECs".

Mr Dennis Khoo, head of personal financial services at UOB, said: "When someone decides to buy a property, they should be clear about the costs, the factors that can affect their affordability and terms of their home loans.

"They should also set aside sufficient funds to manage potential rising interest rates and other unforeseen circumstances."

Ms Joanne Tee, 29, who works in the public sector, said she and her husband bought their first home, a four-room EC at Prive@Punggol, because it offered facilities similar to those of a private condo but was still "financially viable".

As for the possible rewards that could come when the EC, which obtained Temporary Occupation Permit in 2013, becomes fully privatised, Ms Tee believes it could be just a bonus. "But... it's still too early to think about selling it," she said.

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A version of this article appeared in the print edition of The Sunday Times on March 20, 2016, with the headline Investors see opportunity in EC market. Subscribe