Is the EC market immune to the pandemic?

By
Nicholas Mak
,
ERA Realty Network
/ EdgeProp Singapore
|
January 8, 2021 6:00 AM SGT
SINGAPORE (EDGEPROP) - Five new executive condominium (EC) developments with about 2,800 units in total could be launched in the next three years. The first EC project to be launched will be the 700-unit Parc Central Residences by a joint venture between Hoi Hup and Sunway Development, which will open for e-application on Jan 7. It will be followed by MCC Land’s Provence Residence, located at Canberra Crescent.
PARC-CENTRAL-RESIDENCES-Aerial-Night-View-artist-impression - EDGEPROP SINGAPORE
E-application for the 700-unit Parc Central Residences started on Jan 7, 2021 (Picture: Hoi Hup/Sunway Development)
The land price of four of the five EC projects at which developers acquired the land varied within a narrow range of $555 to $578 psf per plot ratio (psf ppr), which is similar to the land price of three EC projects that are currently on sale in the market, namely, Piermont Grand, Parc Canberra and Ola.
The average land price for Piermont Grand, Parc Canberra and Ola is $572 psf ppr, which is similar to the average land price of the upcoming Parc Central Residences and Provence Residence EC projects. However, rising development costs due to the Covid-19 pandemic could pressure the developers to launch the new EC projects at higher prices.
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Upcoming EC project launches - EDGEPROP SINGAPORE
Source: ERA Research & Consultancy

Primary market sales

Despite the pandemic and economic recession in 2020, the EC market held up relatively well in terms of prices and sales. Based on preliminary figures, real estate developers sold about 955 uncompleted EC units in 2020, more than the 822 and 492 uncompleted EC units sold in 2018 and 2019 respectively.
The healthy demand for ECs was partly contributed by the buoyant HDB resale market, where the rising public housing resale prices increased the financial ability of HDB flat owners to upgrade to ECs or private residential properties.
NO.-OF-EC-UNITS - EDGEPROP SINGAPORE
Sources: URA, ERA Research & Consultancy
At the same time, the rising prices of HDB resale flats cast a favourable light on ECs, as the latter appeared increasingly more affordable. In addition, the average prices of mass-market condominiums increased steadily in 2019 and 2020. As a result, ECs attracted more buyers from the “sandwiched class”, which refers to home buyers who aspire to buy private housing but cannot afford to do so.
When the EC sales volume was analysed over a longer time period, the developers’ sales in 2020 were weaker than in earlier years: 955 EC units were sold last year, which was only 39% of the five-year annual average sales of 2,440 EC units from 2015 to 2019. The relatively lower sales in 2020 were partly due to the declining stock of available EC units for sale.
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In 2020, two EC projects, namely Parc Canberra and Ola, with a combined total of 1,044 units, were launched for sale. However, they could not reverse the trend of EC inventory shrinking. The number of launched and unsold EC units decreased steadily over the past five years — from the peak of 3,572 units in 4Q2015 to 556 units in 4Q2020. As a result, some home buyers who could not find any new EC projects for sale in the location of their choice turned to other forms of housing.
EC-PRIMARY-MKT-MEDIAN-PRICE - EDGEPROP SINGAPORE
Sources: URA, ERA Research & Consultancy

Analysis of EC price trends

The median prices of new ECs remained stable for most of 1996 to 2006, ranging between $350 and $450 psf. From 4Q2006 to end-2010, the median prices of new ECs increased 85.4% to about $750 psf. This was followed by a seven-year plateau from 2011 to 2017 when median prices hovered within a range of $700 to $825 psf. The period of price stability ended with three years of sharp increases, when median prices jumped 41.9% from $793 psf in 4Q2017 to $1,125 psf in 4Q2020.
In the 14-year period from 4Q2006 when EC prices started to increase significantly, to the end of 2020, the median prices of new ECs increased by an astonishing 178.5%. Over the same period, the private residential non-landed property price index increased 63.8%.
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The EC price growth was driven by similar factors that increased the prices of private residential properties, such as stable economic growth, increasing household income and positive market sentiments. In addition, EC prices are influenced by prices of mass-market condominiums.
BLD-OLA-SCALE-MODEL - EDGEPROP SINGAPORE
The 548-unit Ola at Anchorvale Crescent was one of two EC projects launched last year (Photo: Albert Chua/EdgeProp Singapore)

Effects of cooling measures on EC market

The new round of property market cooling measures introduced by the government in July 2018 also affected the demand for ECs. Based on the average rate of sales of the three EC projects launched before the 2018 cooling measures, namely Rivercove Residences, Hundred Palms Residences and iNz Residence, an average of 84.3% of the total units in these three projects were sold three months after their respective launches.
After the 2018 market intervention by the government, developers launched three new EC projects in 2019 and 2020, namely Piermont Grand, Parc Canberra and Ola. The average rate of sales of these three EC projects three months after their respective launches was 52.5% of the total units in each of these EC developments. The average rate of sales after the cooling measures was significantly lower than that of the earlier EC launches. Hence, the tighter property market curbs slowed down the demand for ECs.

Lure of ECs

A hybrid residential property, an EC is basically a condominium where buyers must adhere to certain HDB regulations before the EC is fully privatised 10 years after its completion date. ECs are built and sold directly by private developers on land parcels purchased through government land sales (GLS). The government has been selling land parcels for EC developments through competitive land tenders since 1997.
Most ECs are quite sizeable, averaging about 500 to 550 units each. Due to the generous sizes of the developments, condominium facilities such as swimming pool, gymnasium, children’s playground, private car park and function rooms can be found in EC projects.
The regulations concerning EC state that the buyers must form a family nucleus that include at least one Singaporean and the other family member can be either a Singaporean or Singapore permanent resident (SPR). Furthermore, the average gross monthly household income of EC buyers must not exceed $16,000.
EC homeowners can only sell to Singaporeans or SPRs or rent out the whole unit after a minimum occupancy period (MOP) of five years. Ten years after the EC is completed, it will be fully privatised and the units can be sold to foreigners.
BLD-PARC-CANBERRA-SHOWFLAT - EDGEPROP SINGAPORE
The 496-unit Parc Canberra by Hoi Hup and Sunway Development has already sold close to 90% of its units since the EC project was launched in February 2020 (Photo: Albert Chua/EdgeProp Singapore)

Fees and payment structure

Those who wish to take up a housing loan to purchase their EC unit are subjected to both the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR). Under the MSR regulation, borrowers can only use 30% of their gross monthly income for all property loans. Additionally, the TDSR states that the borrower can only use up to 60% of their gross monthly income to service all their outstanding loans, including car loan, credit card loan and housing mortgage.
Home buyers are required to pay a resale levy when buying a new EC, if they had previously bought a subsidised HDB Build-To-Order flat or received a CPF Housing Grant. The amount of levy payable varies according to the first subsidised housing type bought by the EC buyer.

Perks of ECs

Despite the restrictions imposed on home buyers, there are certain benefits that make ECs an attractive property type for home buyers, especially first-time home buyers. Firstly, the prices of ECs are lower than private condominiums. Secondly, when the EC owner sells their unit in the future, there is a high likelihood that they can enjoy a capital gain as the EC is progressively privatised.
In addition, the Deferred Payment Scheme is available as one of the financing options for new ECs. Under this scheme, buyers only need to put 20% of the property price as the downpayment and pay the rest of the amount when they receive the keys to their units.
Despite the adverse impact of the coronavirus pandemic in 2020, the median transacted prices of new EC ended the year with a 4.0% y-o-y increase in 4Q2020. However, the price growth in 2020 was relatively mild compared to the 11.7% y-o-y jump in EC prices in the preceding year.
The pandemic is causing bottlenecks in the construction supply chain, which leads to higher costs in some cases. In addition, Covid-related safety measures expected to be implemented for construction workers are likely to increase development costs.
As a result, home buyers who are waiting for prices of new ECs to decline could be waiting in vain.
Nicholas Mak - EDGEPROP SINGAPORE
Nicholas Mak is the head of research & consultancy at ERA Realty Network Realty