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INCREASED vacancy rates amid an oversupply of executive condominium units (ECs) is reviving debate in property circles about the relevance of the public-private housing type today.
This is especially so since the recently increased income ceiling to S$14,000 from S$12,000 seems to have failed to boost demand for ECs, despite 6 per cent more Singaporean households added to the eligible buyer pool.
The narrowing price gap between ECs and 99-year leasehold mass market condominiums has also not helped demand, with some eligible EC buyers finding it more worthwhile to put their money in the latter, which are not subject to the leasing or resale restrictions for ECs.
ECs also face some competition from better-quality and well-located build-to-order HDB projects, of which there have been more in recent years.
Ku Swee Yong, CEO of Century 21, is one of those who strongly believe that ECs are losing their relevance. He says that some buyers are starting to treat ECs as purely investment homes. He judges this from the rising vacancies in ECs over the last 24 months. In the third quarter of 2015, the vacancy rate stood at 10.5 per cent, going by Urban Redevelopment Authority (URA) data. This is high, considering that from 2012 to Q2 2013, the vacancy rates were always less than one per cent.
Mr Ku thinks that these owners are young couples who are first-time buyers possibly enjoying grants, but continue to live with their parents after marriage.
"I am not sure if taxpayers should be bearing the burden of providing subsidies and grants for more than a thousand units of ECs to allow the sandwich class to leave their EC units empty."
Mr Ku thinks that these buyers are waiting out the five-year minimum occupation period, after which prices should re-calibrate to the level of private residences, before they sell the units to Singaporeans or permanent residents for a profit.
But others, such as PropNex chief executive Mohd Ismail, do not believe the system is abused to that extent.
It is unlikely that buyers would lock up their money in an EC unit for so long (three years of construction plus five years of minimum occupation) given the opportunity cost and no guarantee of a capital gain at the end of it, he says.
"People generally still buy ECs for the lifestyle aspect. It doesn't make sense to continue to pay monthly instalments and not stay in your EC to enjoy the facilities.
"The higher vacancy rate could be explained as HDB upgraders struggling to sell their HDB flats within the stipulated six-month period. That's why they cannot shift into their ECs yet."
He adds: "I think ECs still play a relevant role in fulfilling the aspirations of Singaporeans wanting to own a lifestyle home. If you don't have ECs at this affordable entry level, many Singaporeans will feel that lifestyle homes are only for an elite group."
But all invariably agree that the supply situation looks set to worsen next year, and it seems that the government is not doing much to mitigate it.
According to URA, at the end of Q3 2015, 3,435 launched EC units remain unsold. And 3,780 units are likely to be launched for sale in 2016, putting the total supply at over 7,000 units.
And still, the government is continuing to supply land zoned for ECs. Two weeks ago, it was announced that a site at Anchorvale Lane would be launched in the first half of 2016, expected to yield about 640 units.
SLP International executive director Nicholas Mak says: "The government has been placing EC land parcels in the confirmed list of every government land sales programme since the end of the 2008 financial crisis . . . Why doesn't the government put the sites on the reserve list? If there are interested parties, they will trigger it.
"(As it is,) even if the government were to suspend the sales of new EC land parcels for a year, the combined number of launched and unsold EC units plus the EC units that are still not launched for sale yet would be enough to supply the market for about two years."
Going by dismal EC sales in the three months from September to November (after the income ceiling was raised in late August), some worry that the pool of eligible buyers for ECs has been exhausted. The main choke-point for demand remains the mortgage servicing ratio, capped at 30 per cent of buyers' gross income.
According to URA, about 2,400 EC units were sold in January-November last year, 50 per cent higher than in 2014, but this was really due to more launches.
Some 3,750 units were launched following their mandatory 15-month waiting period, 50 per cent more than the 2,500 units launched in 2014.
Among the seven EC projects launched in 2015, City Developments held claim to both the best-selling project and the worst-performing one.
The Brownstone in Sembawang, which sold 48 per cent of its 638 units, took top honours while The Criterion at Yishun, which moved only 10 per cent of its 505 units, was the least successful.
This year, EC prices are expected to come down, given that EC land bids in 2015 have eased to an average of S$284 per square foot per plot ratio (psf ppr), from S$375 psf ppr in 2014, says PropNex's Mr Mohd Ismail.
Choa Chu Kang appears to be the next EC hotspot in 2016. There are seven anticipated EC launches in 2016, three of which are located there.
Last year, the massive Sol Acres EC along Choa Chu Kang Grove sold about half of its 707 launched units. Phase two will see it launch the remaining 620 units.
R'ST Research director Ong Kah Seng says: "The opening of Downtown Line 2 may improve buyers' interest, as the connectivity of Choa Chu Kang and Bukit Panjang will be significantly enhanced."
If priced attractively at S$750 to S$780 psf ppr, the remaining Sol Acres units, as well as Wandervale at Choa Chu Kang Drive and an unnamed project at Choa Chu Kang Avenue 5 should sell well, with about two-fifths taken up within the first three months of launch, he says.
This appears to be the new definition of "well-sold" for ECs.