Executive Condominiums- Singapore’s Best- Kept Secret!

 

Executive Condominiums (ECs) were introduced in the 1990s to cater to Singaporeans’ aspirations of owning a private property.  The scheme targets the young graduates and professionals, who can afford more than an HDB flat but find private property to be out of their reach. Specifically, ECs are very similar to private properties in terms of design and facilities.

The only difference is that there are limitations on who can qualify to buy EC units for the first 10 years after the development obtains its Temporary Occupancy Permit (TOP).  After the 10thyear, all restrictions are lifted and it can be transacted freely in the open market.

Until recently, I used to think that ECs were not as good an investment as private properties.  After all, EC owners were paying slightly more than a HDB flat, while not having the flexibility as a private property as they had to wait until the 11thyear before they could freely sell their units.  However, since the introduction of the Seller’s Stamp Duty (SSD), where sellers have to pay stamp duties if they were to sell their private property within the first 4 years of purchase, the main flexibility that private properties used to possess has been severely curtailed.

Apart from that, my research team at Ascendant Assets recently concluded a report to understand how profitable ECs were.  With about 16 years of data, we were able to uncover many interesting findings and two of the more interesting observations are as follows:


Observation 1 – There were slightly more profitable ECs deals than condominium deals

Data obtained from URA showed that the percentage of profitable ECs and condominium deals were 80% and 78% respectively.  This meant that slightly more EC owners sold their units for a profit as compared to condominium owners.  A possible reason that ECs are slightly more profitable could be due to the buyers’ profile.  Unlike private properties, which attract a wide variety of buyers (i.e. homeowners, mid-to-long-term investors and short-term speculators), new ECs tend to attract the less-speculative homeowners due to the 5-years MOP.  As a result, there are slightly more profitable transactions as many of these EC owners buy with the intention of holding their units for the long-term and would sell if an attractive offer comes along.


Observation 2 – ECs have the potential of making significant profits 

As a whole, EC owners who sold their units made an average profit of $204,622, however the maximum profits made from an EC unit was $980,730.   The owner of the most profitable EC unit bought it for about $840,000 and held it for slightly more than 10 years.  From these figures, it can be concluded that ECs have the potential to make good returns as well.  The profit distribution is shown in the figure below.

Profit Distribution for Executive Condominiums (from 1996 to 2012)

Source: URA and Ascendant Assets Pte Ltd

Intuitively, we would expect ECs to produce good returns as the launch prices are kept “artificially depressed” due to the various sales restrictions (i.e. citizenship, family nucleus, income ceiling, ownership in private property, etc.).

Hence, when the 5-year MOP is over and when the sales restriction is lifted on the 11th year, the price of ECs would jump in value to become comparable to their private property counterparts.  Due to the sales restrictions, the most expensive new EC unit sold by a developer was $1.32million in Nov 11 for a unit at Riverparc Residence.

On the other hand, due to free market forces, the most expensive resale EC unit sold was $1.88million in Oct 10 for a unit at Bishan Loft – supporting the observation that the value of the EC would jump when sales restrictions are lifted.

Conclusion

In view of the high private property market prices as well as restrictive buying/ selling conditions, ECs are gradually becoming attractive and homeowners who want to upgrade from a HDB could considering getting an EC. It is important to note that even though ECs have found to generate good returns, there have also been unprofitable transactions as well.

Akin to purchasing any other types of property, it is important to consider the location of the EC as no two developments are alike.  However, if a buyer is careful in his EC selection, he can be assured knowing that making profits of several hundred thousands dollars would be something he can expect when he sells his property eventually.

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