Pandemic-fuelled demand drives EC prices to record high

REAL estate markets have been booming globally amid the macroeconomic headwinds and market uncertainties. Strong buying sentiment, fuelled by record-low interest rates and ample liquidity, drove up prices of properties higher in many advanced cities.

As a prominent property hotspot, Singapore has similarly seen a sales rebound for both the private and public housing sectors. Property demand remains fundamentally strong and many Singaporeans were snapping up properties around the island. The strong buying momentum, coupled with a depleting housing supply, is starting to weigh on the market as home prices creep up in recent months.

As work-from-home policies become the standard across many industries, people are now enjoying greater liberty to live where they want rather than where their jobs require. Buyers are shifting away from the city centre and looking for larger and cheaper homes in suburban areas. As they expand their search to the broader reaches of the island, executive condominiums (ECs) have caught the eye of many prospective buyers.

ECs are probably one of the most affordable private housing in Singapore. As a hybrid of public and private housing, new ECs are sold at lower prices compared to private condominiums despite being built by private developers. New ECs are more affordable since the government greatly subsidises them with grants that are comparable to other flats.

ECs become fully privatised after 10 years and can be sold to foreigners. However, new ECs are subjected to more restrictive buying conditions, minimum occupancy periods, and specific resale criteria which are similar to Build-to-Order (BTO) flats. For buyers who do not meet the buying criteria for new ECs, they may consider resale ECs which are fully completed and cheaper than private condominiums. In short, ECs are a good housing option for buyers to get on the first rung of the property ladder.

REBOUND IN EC DEMAND

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The EC market is currently driven by demand for cheaper, bigger homes by millennials and first-time buyers.

Sales were strong for both new and resale ECs. Last year, overall sales volume of ECs surged by 70.5 per cent to 2,145 units from 1,258 units in 2019, surpassing the 1,735 units moved in 2018. For new ECs, the 700-unit Parc Central Residences at Tampines Street 86 sold 417 units or 59.6 per cent of the entire project during its first-month sales in January this year.

Other projects, such as OLA at Anchorvale Crescent, Piermont Grand at Sumang Walk and Parc Canberra at Canberra Walk, collectively sold more than 70 units in the same month.

2020 was a banner year for resale ECs as a record number of units were sold. Last year, resales of ECs hit 1,239 units, having surged 58.2 per cent from the 783 units resold in 2019. The total number of ECs resold in 2020 was above the 10-year average (2010 to 2019) of 589 units. The most popular resale ECs in 2020 and 2021 were Twin Waterfalls (112 units), Blossom Residences (90 units), The Tampines Trilliant (82 units), The Rainforest (76 units) and 1 Canberra (76 units).

RECORD PRICES FOR BOTH RESALE AND NEW ECs

Tepid supply and robust demand kept prices of ECs high. This year, new EC prices are inching further north, currently hovering just below S$1,200 per square foot (psf).

In January 2021, the median price of new ECs was S$1,172 psf, which was a historical high. Parc Central Residences' median price was S$1,177 psf, while OLA was at S$1,133 psf, Piermont Grand at S$1,129 psf, and Parc Canberra at S$1,103 psf. The highest price achieved in Parc Central Residences was S$1,286 psf, OLA was S$1,264 psf, and S$1,210 psf in Piermont Grand.

Prices of resale ECs had similarly hit a record high in January this year with a median price of S$915 psf. For the whole of 2020, resale prices rose 3.4 per cent year on year from

S$856 psf in 2019 to S$885 psf in 2020. Last year, prices jumped by a whopping 48.5 per cent when compared to 2010. The higher prices were mainly caused by a supply-demand imbalance. There has been a dearth of new launches over the past few years. In contrast, demand for ECs grew substantially since more buyers are now eligible to buy ECs ever since the monthly income ceiling was raised from S$14,000 to S$16,000. The median income of Singaporeans has also grown, helping to expand the pool of buyers who can afford to buy ECs.

PRICES OF ECs GROWING AT A FASTER PACE THAN CONDOS

Over the past five years, the price growth of ECs has outpaced condominiums. From 2016 to 2020, EC prices increased by 27.9 per cent, while non-landed private home prices rose at a slower pace of 19.2 per cent.

In fact, both new and resale ECs appreciated faster than non-landed private homes. For instance, new EC prices surged by 42.5 per cent over the same period, as opposed to 22.4 per cent for new non-landed private homes. Similarly, prices of resale ECs grew at a faster pace of 28.8 per cent when compared to the 8.6 per cent for non-landed private resale homes.

DEMAND LIKELY TO CONTINUE

ECs may continue to be in demand as the price disparity between ECs and private condominiums is still substantial. Based on prices in 2020, the price gap between ECs and non-landed private homes was 55.8 per cent.

For new homes, the price gap was 52.1 per cent while resale was 40 per cent. The significant price difference between ECs and private condominiums will continue to draw buyers who are looking for affordable private homes in the suburban areas.

Some buyers have also turned to the EC market after the recent clampdown on the re-issuance of Option to Purchase (OTP) for new condominiums. To instil greater financial discipline in making purchase decisions, developers are no longer allowed to continually re-issue OTPs upon expiry without financial penalties. Home-owners will have to sell their existing units if they wish to avoid paying the Additional Buyer's Stamp Duty (ABSD). Housing Development Board (HDB) upgraders can avoid this if they were to buy a new EC, since they do not need to pay ABSD as long as they dispose of their current flats within six months of taking possession of the completed EC. For others, they may buy a resale EC which is completed and cheaper.

The low supply of new ECs is likely to continue to prop up prices. Three more EC projects could be launched within these two years -- Provence Residence at Canberra Link, and sites at Fernvale Lane and Yishun Avenue 9. To ensure that marginal buyers are not forced out of the market, the authorities may consider releasing more land - including for ECs - especially in the suburban areas to moderate prices to a more sustainable level.

• Christine Sun and Timothy Eng are senior vice-president of research & analytics and research analyst respectively at OrangeTee & Tie.