Executive condos — a low-risk, high-return investment asset?

By Alan Cheong / Savills Singapore | April 4, 2016 10:00 AM SGT
Mass-market private condominiums and executive condos are perceived as two classes of properties with different investment returns. After all, new private condos carry a higher price tag than ECs. However, is that really true? Looking at the first batch of ECs that were launched in 1996 and 1997 and private condos of comparable age in their vicinity, the investment returns are almost the same.
Table 1 shows the annual compounded price appreciation of selected ECs versus the URA Non-landed Property Price Index.
From their launch dates until end-2015, in terms of price, the performance of ECs has trumped that of general non-landed properties in Singapore. Moving forward, we believe that the long-term price performance of ECs will be further sealed with the government’s focus on raising productivity to sustain income growth. If, say, Singapore’s long-term productivity growth manages to reach 2.5% per annum, wages will likely grow at that rate too. This works its way down to keep annual private property price increases growing probably at the same rate. For private condos, a 2.5% annual price growth is an exceptional return because it trumps the historical returns, as seen in Table 1.
For those who are qualified to purchase an EC, they stand to gain a windfall because, for a start, ECs are priced at a discount to private condos. For this study, we have selected an EC that is still being marketed in one of the newer housing estates in Singapore. The price difference between this EC and a sample of new private condos within a 2km radius is a steep 27% (see chart).
For the selected EC development, which is equipped and furnished to modern condo specifications and selling at a 27% discount to new private condo prices, once the minimum occupation period (MOP) ends (say, 4Q2022),...