ECs have a pivotal role to play in the mass market

FORMER National Development Minister Khaw Boon Wan commented in Parliament back in 2013: "If I can give you an analogy, it's like offering you a Lexus at the price of a Corolla, but only Singaporeans have this privilege for (buying it at that price). And they know in due course the price will go up above the level of a Lexus, so I think it is a very good scheme."

Despite the diminishing supply and rising prices, executive condominiums (ECs) remain a promising choice for buyers in a sea of new project launches, with the latest EC, Piermont Grand, launching in July.

The government unveiled the concept of ECs in 1995 to cater to the aspirations of Singaporeans to own affordable private housing. ECs are a viable solution for the "sandwiched group" of Singaporeans, who desire to own a condominium lifestyle at a reasonable price. Applicants purchasing an EC have to form a family nucleus, with a household income not exceeding S$14,000.

Dwindling supply

In the past five years, the demand for ECs was the highest in 2017, with a total of 4,011 units being sold. However, supply started to dwindle from 2015, from 3,750 units in 2015 to 628 units in 2018. There was only one new project launched in 2018, which was Rivercove Residences. This was a 59.6 per cent (y-o-y) decline in the number of units offered as compared to the previous year in 2017, which had a total of 1,555 units.

Under the second half of the Government Land Sales (GLS) Programme, the government announced that there will be two EC sites. Both of these sites are expected to yield an estimated 1,075 units.

Based on our analysis of the sites awarded from 2018 to the first half of 2019, we compared land bid prices for EC sites and private property sites in the Outside of Central Region (OCR) segment. As ECs are primarily located in the OCR segment, we have used private properties located in the same segment as reference. By comparing EC sites with private property sites, we observed that EC sites benefit from a lower land cost as compared to its counterpart.

Based on the four ECs that have been awarded so far, the average price of an EC site is S$574 psf ppr. When considering the seven private property sites in the OCR segment, the average land cost is S$825 psf ppr. This translates to a 30.5 per cent lower land cost for EC sites. Hence, developers are able to pass on their savings in terms of a lower price for their EC projects.

ECs typically used to be offered at a 20 per cent to 25 per cent discount. However, based on an analysis of a basket of EC properties from 2010 to 2018 with a total of 43 projects against a corresponding private condominium in the OCR segment, the average price gap is now 31.8 per cent, providing ECs an edge over private condominiums in terms of pricing and illustrating value proposition.

However, with the lack of new launches for ECs, this has led to a rise in prices for ECs as well. In recent times, EC prices have started to cross the S$1,000 psf mark. Using Rivercove Residences as an example, the highest transacted unit price for the development was in April 2018. A unit on level 16 with a size of 89 sq m (958 sq ft) was sold for S$1,086 psf. With the recent transactions of Rivercove Residences in 2019, many units transacted at the S$1,000 psf mark as well.

Furthermore, according to the data retrieved from URA Realis on July 9, 2019, the median price of new ECs increased from S$941 psf (1Q19) to S$1,003 psf (2Q19). This was a 6.5 per cent (q-o-q) price change. On the other hand, the median price of private new homes in the OCR segment rose by 0.8 per cent, from S$1,386 psf in first quarter of 2019 to S$1,397 psf in the second quarter of 2019. The increase in price growth of ECs have started to overtake private new homes in the OCR segment by 5.7 per cent in the corresponding period.

With EC prices starting to form the new benchmark, a lack of supply of ECs will cause mass market private property prices to continue to rise. Thus, from an affordability perspective, Singaporeans who are aiming for their first private home will face a tough hurdle in achieving that dream. Hence, it is important that the government continues to supply more EC sites as this will curb price escalation and avoid runaway prices.

Looking at the last EC projects that were launched - namely Rivercove Residences (launched in April 2018) and Hundred Palms Residences (launched in July 2017) - Rivercove Residences was able to sell 91.9 per cent of its units within three months of its launch. Demand for the project eventually grew and according to data retrieved from URA Realis, it has now sold close to 100 per cent of all its units.

For Hundred Palms Residences, it was an exceptional case as it garnered red hot demand, with all of its 531 units sold out on the day it was launched. Reportedly, more than 2,700 e-applications were received in the two-week window leading up to its launch, making it one of the most over-subscribed ECs of all times.

ECs play a vital role in providing a condominium lifestyle and fulfilling the aspirations of the millennials and the younger generation who want the very best in terms of lifestyle for themselves and their children.

Moving forward, to curb runaway prices in the private property segment and to meet the growing needs of Singaporeans, the government should consider having a reasonable supply of ECs each year. Based on the supply and demand trends of ECs in the past few years, a minimum of 3,000 EC units is reasonable, which is about 20 per cent of the current supply of BTO flats of 15,000 this year.