Housing is glowing hot with EC bids; here is why…

Hoi Hup Realty has won the bid for an Executive Condominium (EC) site in Hougang, at a high price of $331.02 per square foot. This was around 6 per cent higher than the next bid, which was around $312 psf. This comes at a surprise to some, given that EC sales have been slow in the past year. Here’s what the high bid says about this unique class of housing:

Why the confident bid?

The EC site is a 1.8-hectare plot of land, along Yio Chu Kang Road. The end development will have 560 units, about 70 per cent of which will be three bedroom apartments.

At the given bid price, the EC will have to sell for about $700 psf to break even; a seemingly tough call in the middle of a property market slump. But historically, most EC prices have ranged between $750 and $800 psf.

The general consensus is that Hoi Hup Realty made such a high bid for location-specific reasons. It is in the middle of a mature estate, and there have been no EC launches in the area of late. Also, it is close to Rosyth school, which is one of the more desirable educational institutes.

Many developers and analysts assert that it is the location only, and not confidence in the EC market, that drove such bids; but this is an unnecessarily pessimistic view.

For more info about amenities for EC in Yio Chu Kang Road, please click below

Has the market for ECs been sluggish?

The EC market has been plagued by worries of oversupply. Seven ECs were launched in 2015, and take-up rates only range from 10 per cent to 48 per cent.

However, we feel this can be attributed to a general slowdown in the property market as a whole: a combination of loan curbs via the TDSR, and lower prices in mass market condominiums, are a more likely culprit. There is also the shock of coming from a high base: in 2013, the number of applications for EC units could be as high as double the available units. But while those days are over, it does not signify a fundamental change in the fact that ECs are amongst the soundest property investments a buyer can make.

Why ECs are and remain a phenomenon

There are plenty of advantages an EC offers that you will not find in other types of property. This may be one of the few housing classes in the world that combines the best of private and public housing policies:

ECs are ultimately private properties that come with government subsidies
ECs are accessible to a growing, sandwiched class
ECs can appreciate more strongly than private condos

ECs are ultimately private properties that come with government subsidies

ECs are built by private developers, just like any other private condo. They come with the gym, BBQ pits, swimming pool, and other typical amenities. The difference is that ECs are considered public housing (and follow all the same rules) for the first 10 years.

On the 11th year, they are considered private housing – they can be fully let out, sold to foreigners and organisations, have no Airbnb restrictions, and all the related benefits.

The best part about an EC is that it can come with CPF housing grants. If you are a first-time buyer with a monthly household income of:

Up to $10,000 – You can get a CPF housing grant of $30,000
Between $10,001 to $11,000 – a CPF housing grant of $20,000
Between $11,001 to $12,000 – a CPF housing grant of $10,000

There is no housing grant for those with a household income of $12,000 to $14,000 per month, but there is an inherent cost advantage (see point 2.)

In addition to subsidies for the buyer, note that the government subsidies the land sales for ECs to varying degrees, to ensure affordability.

One of the most basic rules of property investment is to look at the buying price. A sizeable subsidy of $10,000 to $30,000 is significant for what is, in the long run, private housing.

New EC Launches:

Sol Acres at Choa Chu Kang. Please click below for more info

Brownstone at Sembawang, 300 metres away from Canberra MRT Station. For more info, please click below

The Visionaire at Sembawang, 400 metres away to Canberra MRT Station. For more info, please click below

Parc Life at Sembawang, 700 metres away from Sembawang MRT Station. For more info, please click below

The Criterion at Yishun, tranquility with views of Lower Seletar Reservoir. For more info, please click below

The Vales, 600 metres away from Sengkang MRT Station. For more info, please click below

ECs are accessible to a growing, sandwiched class

In general, ECs are priced between $750 to $850 psf. They will be about 20 per cent cheaper than surrounding private condos.

In 2015, the income ceiling for EC buyers was raised to $14,000 (previously, it was not possible to buy an EC if your monthly household income exceeded $12,000.)

This makes ECs exactly right for Singapore’s badly sandwiched upper-middle class. At $12,000 to $14,000 per month, an affordable home would be around $840,000 (five times annual income.)

But most private condos reach the $1 million mark, and can be a painful stretch for this group of home buyers. ECs are a compromise that not only fits their budget, but also represents a solid investment opportunity. In fact…

ECs can appreciate more strongly than private condos

Many of those who bought the first batch of ECs (they appeared in the 1990s) have seen better appreciation compared to private condos.

For example, Nuovo in Ang Mo Kio has some units reaching $1,000 psf, up more than 140 per cent from its launch price in 2011. Bishan Loft, also launched in 2001, has seen over 170 per cent appreciation to around $1,160 psf. These substantially outpace many private condos launched at the same time, which have typically appreciated by just over 80 percent in the past decade.

Of course, we’re not saying that ECs are guaranteed to appreciate better than private condos – a lot of it is still dependent on factors like location, maintenance, and the market sentiment when it’s time to sell.

But simply by virtue of lower buying price, thanks to subsidies, ECs will at least give private condos a good run for their money.

Some will contend that the inherent drawback of ECs is flexibility when it comes to selling. You do have to wait 10 years before it goes private. But if you are a home buyer intending to stay for the long term, the 10-year time period is almost irrelevant.

We would share any developer’s confidence in the EC market, due to sound fundamentals

Assuming a decent location, ECs just make sense as a form of housing. They provide all the luxury and investment potential of a private condo, without the staggering loan quantum that comes with one. We believe that most developers also know this, hence the continued interest in EC sites.

If you fall within the right income range (under $14,000 per month), you’d do well to consider ECs as an alternative to private condos.

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