While demand for executive condominiums (ECs) have slowed down since 2014, data from the Urban Redevelopment Authority (URA) shows that this property type is generally a profitable investment in the long run, with prices catching up with private condos, according to an OrangeTee report.
In 2012 and 2013, 14 of the 16 new EC projects sold at least 33 percent of their units during the first month of launch. But in 2014 and 2015, only one of the 11 developments managed to do this due to the tougher property cooling measures, such as the 30 percent Mortgage Servicing Ratio (MSR) and the resale levy for second-time buyers.
Nevertheless, prices of EC units are almost on par with that of private condos after being fully privatised, based on historical data.
Notably, ECs can only be sold in the open market after the buyer has completed the minimum occupation period (MOP) of five years. After 10 years, it becomes fully privatised and can be sold to foreigners.
“Based on an analysis on a basket of comparable ECs and condos, the average price gap between new condominiums and ECs starts at around 20 percent or more. Upon fulfilment of MOP and at privatisation, the discount narrows to nine percent and five percent respectively,” said the report.
By matching caveats, OrangeTee also estimated the percentage profits of EC buyers at the end of the five-year MOP and after 10 years. Currently, there are 21 EC developments in Singapore that have been privatised.
“The results show that not all ECs are ‘sure win’ investments at MOP. Out of 21 projects, 13 projects made a loss after MOP completion, and the remaining eight projects managed gains of over 20 percent,” noted the report.
“Market timing was the main differentiating factor between the ‘losers’ and ‘winners’. The 13 projects that sold at a loss at MOP were launched during 1996 to 1999, just before the Asian Financial Crisis, when property prices were at their peaks. Projects which were launched during 2001 to 2005 – a period of sluggish growth, managed to achieve returns of at least 25 percent. These projects benefited from the subsequent upturn of the Singapore property market.”
After privatisation, all the EC projects were profitable. The top three earners – Nuovo, The Dew and Bishan Loft – recorded gains of 120 percent, 123 percent and 166 percent respectively. These three achieved better returns due to their locational attributes and surrounding available supply.
On the other hand, Windermere, Chestervale and Pinevale posted the lowest gains of two percent, five percent and 10 percent respectively. These three EC projects struggled to achieve substantial profits as they were launched when prices were at their peak.
Picture Source: View of the Bishan Loft executive condominium.
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