By Gerald Tay (guest contributor)
The Executive Condominium (EC) concept was an innovative public housing initiative launched by the Government in 1997 for Singaporeans and PRs to enjoy “private property” without the huge price tag that comes with it.With rising property prices in recent years, more buyers have taken to ECs with the government releasing ample land for such developments.
But is buying an EC as attractive as before?Or are ECs simply an over-hyped purchase?
Smaller unit sizes, higher PSF prices
Some EC projects had penthouses that sold at unrealistically high prices for buyers who had to have an income ceiling of $12,000. The Government thus decided in January 2013 to limit the maximum allowed apartment size in ECs to 1,700 square feet.
In the new EC launches, sizes like 860 square feet for a 3-bedroom and 1,200 square feet for a 4-bedroom flat are common. The sizes include an oversized balcony and A/C ledge, while the bedrooms can be small as 66 square feet.
Today’s unwitting EC buyers will thus pay higher per square foot prices to compensate for the developer’s loss of profit margins. It’s questionable whether buyers of flats with such high per square foot prices will be able to earn a reasonable profit when they sell, unlike previous EC buyers of the early 2000s.
Potential Oversupply of ECs
Owners hoping to sell their EC units in the future have to contend with the large number of units of both ECs and private property projects that were launched in the last five years.
From 1997 to 2004, only 14 ECs were built.No EC was built between 2005 and 2009, as the HDB phased out the EC scheme in favour of the DBSS scheme. EC land sales only resumed in 2010.
From 2010 to 2015, developers built and launched a total of 41 ECs!
In those five years, 23 out of the total 41 launches (56% of total launches) were located in the Sengkang/Punggol and Woodlands area.
2012 and 2014 registered the highest number of ECs with 11 and 10 new launches respectively.
Whether with the five year MOP (Minimum Occupation Period) or ten year private property conversion process, these ECs entering the future resale property market will face tough competition. Who’s going to absorb this supply?
ECs have lost the exclusivity they enjoyed in the past decade, with so many such developments sprouting up within a short five year time span.
Potential oversupply of private properties
As at the end of 2nd Quarter 2015, there was a total supply of 61,237 uncompleted private residential units (excluding ECs) in the pipeline, compared to the 68,201 units in 1st Quarter 2015. Of this number, 24,435 units remained unsold as at 2nd Quarter 2015. After adding the supply of 14,701 EC units in the pipeline, there were 75,938 units in the pipeline.
Based on expected completion dates reported by developers, 13,191 units (including ECs) will be completed in the second half of 2015. Another 25,841 units (including ECs) are expected for completion in 2016. In comparison, 23,298 units (including ECs) were completed in 2014.
In recent years, plenty of mass market sub-urban condos and apartments have been sprouting up all over the Outside Central Region (OCR). Like it or not, ECs that meet the 10-year private property conversion status will be facing tough competition from these private mass market properties.
Home buyers will have plenty of choices. Sellers cannot be choosy then.
Ageing population andlow GDP growth
Singapore has enjoyed favourable demographics for the past five decades, with a post-war baby boom. Within a generation, the nation was able to educate baby boomers, create enough jobs for them and make them wealthier through rising home prices. We saw how our parent’s generation profited from rapidly rising HDB prices since 1965. This wealth was passed on subsequently to the next generation.
Between 1965 and this year, Singapore’s population grew from 1.9 million to 5.5 million. However, the number of citizens aged 65 and above is increasing rapidly, as population growth slows. The size of this group of citizens doubled from 220,000 in 2000 to 440,000 today, and is expected to increase to 900,000 by 2030.
Last year, the total population here grew by 1.3 per cent, its slowest pace since 2005, while the total fertility rate continued to fall despite the Government’s incentives and encouragement.
This aging population will eventually have a profound impact on every segment of the property market and society as a whole.
Like private properties, ECs that reach their 10 year private property conversion status between 2025 and 2030 will potentially experience the negative impact of an aging population:low population, consumption and GDP growth will curb any price appreciation.
All of these will happen within the next couple of decades. Notwithstanding any shocks to the global economy, we shall see what luck brings to buyers who have overpaid for properties in recent years.
This is the end of part 1 of this article. In part 2 Gerald will examine further whether ECs still represent an attractive investment opportunity.
By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.