New ECs versus private condos: price gap widening

THE price gap between new executive condominiums (ECs) and private condos is widening, as rising condo prices have outpaced the fairly steady prices of its public-private counterpart since 2011.

According to a study by STProperty, buyers who bought an EC this year would have saved 31.7 per cent on average over purchasing a private property from developers. This is higher than the 23.1 per cent savings EC buyers would have enjoyed in 2011. This makes ECs a good value proposition to the aspiring sandwiched class who do not qualify for public housing but can ill-afford private condos, STProperty says.

New Ec price versus Private property price

But consultants say the cheaper prices of ECs are simply a function of their selling and renting restrictions, and the fact that they are essentially still government-subsidised housing.

EC buyers have to live in the unit for the first five years, during which they are not allowed to rent out the whole property or invest in other private residential property. After that, the units can be sold to Singaporeans and permanent residents. Only after 10 years will all restrictions be lifted such that they become fully private and can be sold to anyone.

"The (STProperty) data doesn't exactly capture these limitations. It's also an opportunity cost," said RST Research director Ong Kah Seng.

SLP International executive director Nicholas Mak also cautioned that the data may be making "apple to pear" comparisons. It may be skewed by the one-bedroom units (and, therefore, higher psf prices) in some condos, whereas ECs start only from two-bedders.

The savings figure was calculated by taking the difference in median transaction prices of ECs and condos from the start of the year until Sept 10, and dividing this by the median prices of new condos year-to-date. It included only estates where there have been both EC and condo transactions this year.

STProperty's study also found that EC units resold this year fetched prices close to those of private homes in the open market.

On average, resale ECs have changed hands for 10.5 per cent cheaper than 99-year leasehold condos in the resale market this year - a narrower gap than the price difference of new units.

"To savvy buyers looking forward to capital appreciations of their homes, buying at a price much lower than private homes yet selling at comparable price levels is still a draw factor," said Jason Chen, STProperty's property research manager.

This greater return on resale is also a view held by Eugene Lim, key executive officer of ERA Realty Network. But care again must be taken to ensure that this finding isn't affected by the fact that the resold condo can be much older and, therefore, larger and commanding less in psf prices, Mr Mak said.

The EC market segment has been muted all year because of a dearth of supply after a ruling stipulating that developers can start selling EC projects only 15 months from the date of award of the site, or after completion of foundation works, whichever is earlier. In fact, no EC has been launched this year, but five are expected to come onstream before the year is over, which consultants believe will sell well only if they are priced at about S$750 psf.

Aggravating the market this year is a mortgage servicing cap at 30 per cent of borrowers' gross monthly income implemented last December. This was in response to a sudden shift of interest to ECs after the total debt servicing ratio was effected to limit the total amount of debt individuals could take. ECs became attractive because of their lower quantum purchase price and prices ran up to about S$800 psf in the second half of last year, such that cooling measures had to intervene.

The segment has since chilled, with only 760 new ECs sold for the first eight months of this year, down from about 2,500 from January-August 2013.

But their median prices have risen to S$790 psf from S$750 psf a year ago, probably because developers are not in a hurry to cut prices, having sold a good portion of their units and bought the land at high prices earlier, Mr Ong said.

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New ECs versus private condos: price gap widening

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