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Price cuts needed for ECs in face of supply glut

There has been much discussion recently about what appears to be a glut of executive condominiums (ECs) given the generally sluggish sales for new launches.

There has been much discussion recently about what appears to be a glut of executive condominiums (ECs) given the generally sluggish sales for new launches.

It has been more than four years since ECs, the hybrid private-public housing type, were re-introduced in 2010 to meet the needs of the sandwiched class. Developers rode on the wave of EC demand after the implementation of Total Debt Servicing Ratio (TDSR) in June 2013, as the Housing and Development Board upgrader’s existing monthly mortgage payment was not factored into the new framework’s calculations for EC units bought directly from a developer.

ECs were launched at an average price of about S$800 per square foot (psf) in the second half of 2013, up from S$750 psf before the implementation of the TDSR, and between S$700 and S$750 psf in 2011 and 2012.

As buyers exposed themselves to larger loans, the Government introduced the Mortgage Servicing Ratio (MSR) cap in December 2013 to discourage them from overstretching their finances. Loans granted by financial institutions for new EC units have since been capped at 30 per cent of a borrower’s gross monthly income.

Since then, with the exception of the Lake Life development, which was all but sold out, EC projects launched last year have suffered lacklustre sales. As at the end of May, only 247 of 651 units have been sold at Bellewaters, 182 of 561 units at Bellewoods and 193 of 747 units at The Terrace. Even SkyPark Residences, a 506-unit project launched in 2013, still has 127 unsold units at the end of May, adding weight to the oversupply concerns. Excluding the recently-launched Westwood Residences, another 4,000 EC units could be launched during the rest of this year.

The sluggish sales do not reflect a loss of interest in ECs — it is simply a matter of pricing. Based on caveats lodged, most of the EC projects currently on offer have a median selling price of about S$800 psf, which can no longer be supported for projects in locations such as Punggol, Sengkang, Woodlands, Sembawang and Choa Chu Kang as well as with new supply weighing on the market.

If prices are cut to S$750 in these places, sales will improve significantly. ECs still have a place among sandwiched-class home buyers. Only if prices are cut and very few buyers emerge can we point to some loss in relevance of ECs.

Looking ahead, prices of EC projects to be launched next year are set to fall in these areas. Two sites at Anchorvale Crescent and Woodlands Avenue 12 were awarded at about S$280 psf per plot ratio (ppr) in the first two months of this year.

At this land price, the developers can probably achieve decent profits at average selling prices of about S$730 psf. Developers launching EC projects this year will have to cut prices to bridge the gap, as some buyers may prefer to bide their time in anticipation of a good deal next year.

Over in Jurong, Westwood Residences, which was priced at about S$800 psf when launched last month, has had 118 homes sold in the 480-unit project. This pricing is considered attractive enough for ECs in the area because of the region’s promising rejuvenation under the Urban Redevelopment Authority Master Plan. This is especially so when benchmarked against a median price of about S$870 psf for the very popular Lake Life in the Jurong Lake District, which was launched late last year.

In the past two years, some EC developers sought to increase the proportion of smaller-sized units such as two-bedroom homes that have lower price quanta in response to the MSR cap. But this has raised social concerns since such small units do not promote the development of larger families. With EC land prices having generally fallen to below S$300 psfppr this year, developers will be under less pressure to build smaller units to achieve high psf prices.

With the MSR cap and continued government efforts to calibrate new supply by adjusting EC sites released through its land sales programme, the EC market is likely to find a better equilibrium and provide affordable quality housing for the sandwiched class.

ABOUT THE AUTHORS: Ong Kah Seng and Alex Sun are director and senior analyst, respectively, at RST Research, a Singapore real estate research firm that covers all property sectors, including residential, retail, office, industrial, investment, leisure and hospitality.

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