Some 5,000 exec condos slated for launch this year

Singapore

SOME 5,000 executive condominium (EC) units in up to eight new projects could be launched this year, which will probably exacerbate the build-up of unsold inventory.

With loan restrictions still in place, consultants are expecting tepid take-up of these EC units, especially when developers have little room to adjust prices downwards at sites bought at fairly high prices.

ECs are public-private housing hybrids that are subject to HDB eligibility conditions and minimum occupation period as well as a housing loan cap of 30 per cent for units bought directly from developers, but they become full-fledged private condos after 10 years.

Consultants estimate that there are still some 2,100 unsold units from 12 EC projects launched. Latest data from the Urban Redevelopment Authority released last week showed that the vacancy rate of available and completed ECs shot up to 15.1 per cent in the first quarter this year from 11.5 per cent in the fourth quarter.

SLP international executive director Nicholas Mak likened the EC market to "a person drowning in the sea with two heavy millstones - the mortgage servicing ratio (MSR) restriction and falling resale HDB prices - around his neck".

"The upgrade resale levy will be the third millstone that will seal its fate," Mr Mak added, projecting that it would take about two to three years for the market to absorb the estimated 7,100 units from the unsold inventory and upcoming new launches.

The Amore, launched in January, sold a quarter of its total of 378 units in the first three months. Qingjian Realty, which launched two EC projects last November, sold 34 per cent of 651 units at Bellewaters EC in Sengkang and 22 per cent of 561 units at the Bellewoods EC in Woodlands as at end-March.

Starting from the project on the Westwood Avenue site, second-timers who apply for new EC units will have to pay a resale levy.

Koh Brothers and Heeton Homes are jointly developing Westwood Residences at Westwood Avenue, the second EC project to be launched in Jurong after Evia Real Estate's Lake Life that was a near sell-out last year.

Westwood Residences is expected to be launched this month. The 480-unit project near the Nanyang Technological University has unobstructed views over a landed housing estate but a high land price of S$382 per square foot per plot ratio (psf ppr), JLL national research director Ong Teck Hui pointed out.

Next in the pipeline could be City Developments' project at Canberra Drive, which it is jointly developing with TID Residential, a joint venture between Hong Leong Holdings and Mitsui Fudosan Co Ltd. The site was acquired in January 2014 at S$350 psf ppr and could yield close to 640 units. The consortium also acquired a site at Yishun Street 51 in May last year at S$330 psf ppr, which could yield some 490 units.

MCL Land is merging the two land parcels it acquired at Choa Chu Kang Grove into one project with 1,327 units, according to its CEO Koh Teck Chuan.

Mr Ong noted that the MSR has restricted the pool of eligible buyers and reduced the affordability of ECs, translating to slower demand and take-up in EC projects.

"Some price adjustment would be able to attract more buyers but most of the unlaunched ECs are on sites bought at fairly high prices, which leaves the developers with not much pricing headroom unless margins are sacrificed," he added. "How well the projects will do will depend on their attributes and pricing."

Mr Ong felt that the more attractive projects would be those within reasonable distance to MRT stations and amenities, while those on the Yishun and Sembawang land parcels have a pricing advantage given their lower land prices.

Some consultants argue that with the total debt servicing ratio (TDSR) that caps outstanding liabilities of borrowers at 60 per cent of gross monthly income, the MSR of 30 per cent for EC units bought directly from developers has become redundant. In fact, the MSR has led to a peculiar situation in which homebuyers can obtain a higher loan quantum for a private condominium than for an EC, rendering the latter less "affordable".

EC projects are also subject to a 15-month waiting period from the time the sites are acquired to their launch date since the rule was implemented in January 2013 to tame EC land bids. Prior to this, an EC launch could take place as early as six months from the site acquisition.

But consultants flagged that market conditions can change drastically during the waiting period. Once developers' building plans are finalised, it is difficult for developers to respond to changes, ERA Realty key executive officer Eugene Lim said.

While the measure might have stalled supply, it has not significantly impacted bidding prices, Mr Mak observed. Since they have to wait for a longer period before receiving payments from buyers to fund development costs, the developers are starting construction first and bearing higher financing costs, he said. Yet at the same time, they are left with less flexibility to cope with market changes.

"Furthermore, during the 15-month waiting period, a buyer might have an increase in salary that could disqualify him from buying an EC unit as the buyer's average gross monthly household income must not exceed S$12,000," he said.

Mr Lim noted that it would be good to align the loan rules for ECs with that of private properties. However, the MSR restrictions may not affect HDB upgraders who will receive proceeds from the sale of their HDB flats. As for first-time buyers, there is a trend of parents helping their children with the initial downpayments, he said.

Mr Ong said he does not expect the MSR to be relaxed as it could lead to a resurgence in demand and prices. However, should the bids for EC sites continue to moderate, it may be timely to review the 15-month waiting period for EC launches.