Million dollar ECs may become the norm in the near future

A report by OrangeTee & Tie Research & Consultancy said that million dollar ECs may become a norm, rather than an exception in the near future. The report said that dwindling supply is driving prices of ECs to historical highs.

The report by Christine Sun and John Tay of OrangeTee & Tie said, “more ECs have breached the S$1-million mark in recent years. The number of young, affluent buyers snagging bigger and more luxurious ECs has grown since the monthly income ceiling for buying new ECs was raised from S$12,000 to S$14,000 in 2015.”

Sun, Head of OrangeTee & Tie Research & Consultancy and Tay, an analyst at the same Consultancy, added: “Over the last five years, 20 per cent or 3,132 EC units were sold at S$1 million and above. In contrast, only 8 per cent or 497 EC units were sold at this price range in the preceding five years (2008-2012). For the first half of this year alone, almost 40 per cent of ECs (366 units) were sold at the million-dollar price tag. Million-dollar buys may become the norm as EC land prices have risen. Rivercove Residences, with a land cost of S$355 per square foot per plot ratio (psf ppr), sold more than half its units at over a million dollars each. The land cost of the yet-to-be launched project at Sumang Walk is even higher at S$583 psf ppr.”

The research report by Sun and Tay also cautioned that some buyers of ECs may be overstretching their affordability with their million-dollar purchases.

“Assuming a 25-year loan tenure and a 3.5 per cent per annum interest rate for a couple with a combined monthly income of S$10,000, the maximum monthly mortgage repayment based on the 30 per cent Mortgage Servicing Ratio (MSR) is S$3,000 and the maximum loan available is estimated at S$600,000.

“Considering a S$200,000 down payment with no additional financial support or external funding, the maximum purchase price that the couple can afford for a new EC will be around S$800,000. Adopting the same computation, the recommended maximum purchase price of a new EC unit for couples earning S$12,000 is S$960,000, and for S$14,000 (current income cap for new EC purchases) is S$1.12 million.”

In saying that the number of buyers who may be over-leveraging may continue to grow as new ECs become pricier, the researchers pointed out that buyers may also need to compromise on their living comforts by buying smaller ECs for their affordability.

“Already, small-format EC units (below 500 sq ft) have begun sprouting; from 2016 to the second quarter of this year, 50 such units were sold. Sales of EC units between 500 sq ft and 800 sq ft have also increased from 142 units in 2015 to 432 units in 2017.”

The demand for executive condominium improved with the positive sentiments in the residential property market after the government relaxed some of the market curbs in March 2017. The hunger for EC sites was evident in the 17 bids and record-breaking top bid attracted by the Sumang Walk Executive Condominium Government Land Sale site when tender closed in February 2018.

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But just a few years ago, with an oversupply of Executive Condominiums, the story was quite different. The demand for Executive Condominiums were driven by their relatively affordable price points for the ‘sandwiched’ class. In recognising this demand, the Government opened for application several sites on its reserved list for Executive Condominium developments.

In the 3-year period from 2015 to 2017, only four Executive Condominium land parcels were sold by the government. This translated to only 1.3 sites per year. In the 4th quarter of 2014, 2,505 new units were added as a result of a spillover from 4 new Executive Condominium launches. This situation further worsened with the launch of 10 new Executive Condominium projects (comprising of 5,544 units) from January 2015 to April 2016. This surge was attributed to the government’s series of property cooling measures.

Sun and Tay said, “the escalating prices of ECs may become an insurmountable hurdle for the aspirations of the sandwiched class of home buyers – whose monthly household income is too high for them to qualify to buy a new public housing flat but find a private home purchase out of reach.”

Adding: “Marginal buyers may increasingly be forced out of the market. It is therefore pertinent for the authorities to consider releasing more land to moderate prices to a more sustainable level.”

The researchers said that the average price of new ECs climbed substantially by 18 per cent quarter-on-quarter, and that the pace of growth has surpassed that of new private condos. On a year-on-year basis, the average price of new ECs rose 21 per cent from S$788 psf in Q2 2017.

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