Debunking the Hype behind ECs

Executive Condominiums, otherwise popularly known as ECs, have been all the rage in the local property market in recent years. Essentially a cross between a private property and a HDB flat, ECs are designed and built by private developers, thus offer a wide variety of amenities comparable to that of regular condos. And just like the case of HDBs, applicants need to take note of specific conditions tied to the projects released such as combined household income and Minimum Occupation Period (MOP) before they can proceed with the purchase and resale of ECs. On the plus side though, they can opt to apply for housing grants if they meet the criteria for eligibility.

It comes as no surprise then that more property buyers are hopping onto the bandwagon to lay claim to an EC property in order to enjoy the prospect of luxury living while at the same time benefitting economically from the government schemes open to them. This causes demand for ECs to skyrocket over the course of the last 2 years with recent reports such as the Ecopolitan, one of the latest ECs to be built in Punggol receiving more than 1,000 applications for its 512 units, the highest number of applications so far for an EC this year, becoming commonplace news.

What is more startling is the increase in the prices of ECs. Although the construction of ECs units slated for completion between 2014 and 2016 have caught up with the number of existing completed supply of ECs from 1999 to 2006, it still falls short of the overall total demand. What results is an upward pressure on price, as can be seen in the case of Sea Horizon in Pasir Ris, deemed to be one of the highest in the market with its launch price-tag of $800 psf.

These trends certainly do not show signs of abating, so long as property buyers continue to have the perception that ECs are viable commodities which garner long-term investment. This brings about the question as to the direction this property segment will be heading. Is acquiring an EC unit worth the hype and will there be a likelihood that ECs will become direct competitors to private property? Are they overpriced or is this simply a reflection of the current housing situation in Singapore?

To answer these questions, we will be examining how ECs have performed over time. Focus will be placed on the volume of all resale transactions for completed ECs from 2004 onwards (as denoted from the list below) with rate of price growth derived from the average psf garnered from the resale of these units. Consideration is taken to account for the 5 year restriction on reselling an EC unit in the open market with the dates of completion (TOP dates) of the each EC project used as the start point.

From the data collected, a total of 9364 EC units were launched from 1996 onwards with the majority of EC unit purchases occurring during 1997 to 1999. Of all these EC units sold, 60% were put up for resale to date since 2004. What is noteworthy is that the bulk of the resale activity happened during the 2009 – 2012 duration, accounting for almost 36% of overall EC resales. Extending further, this trend coincides with the growth resumption phase in the property market cycle where we see property resale volumes continuing to pick up following the financial crisis of 2008.

Paying more attention to the resale prices for ECs, we see an interesting trend developing. Although the average PSF initially experienced a small dip from 2004 to 2006, the rate of growth picked up rapidly by almost 20% over the 2 years which followed before cooling down in lieu of the global financial crisis in 2008. By 2009 to present, resale prices shot up again by nearly 62% to hit an average of $794 PSF in mid-2013.

When measured in relation to other property types, it can be said that the pace of price increase for ECs, much like HDBs, were relatively unaffected by the successive rounds of cooling measures. Both these property classes experienced a consistent growth trajectory from 2009 onwards without much volatility as displayed in the private property classes. More importantly, although ECs and HDBs are more stable over this time period, the average PSF for the former doubled in contrast to the latter, which exhibited a slow price growth of 25% over the same period.

What does this mean for property buyers? It holds true that a resale EC might be a good option for genuine property buyers searching for places to reside over both private properties and HDBs, especially when taking into account both its higher prospect for capital appreciation and the relatively lower risk of price unpredictability. However, if current price trends persist, there might be a likely possibility that affordability of an EC would be in question with the price gap between resale ECs and condos narrowing.