Is There an Investment Opportunity Lying in Singapore’s Executive Condominiums (ECs)?

Executive Condominiums (ECs) in Singapore represent a unique housing solution, catering to the needs of the middle-class population facing challenges in the traditional housing market. The concept of ECs was introduced as a strategic initiative by the government to address the housing needs of individuals who find themselves in the income bracket that disqualifies them from obtaining a Housing and Development Board (HDB) flat, yet they fall short of the financial capacity required for private condominiums.

The EC scheme was inaugurated in the 1990s as a part of Singapore’s comprehensive housing strategy. Recognizing the growing gap in housing affordability for the middle-income demographic, the government sought to introduce a housing option that would serve as a bridge between HDB flats and private condominiums. 

Initially, ECs are sold at a price lower than private condominiums, making them an attractive choice for those seeking to move up the property ladder without breaking the bank. These developments are equipped with amenities comparable to private condominiums, offering residents a quality living experience.

Over the years, the rising costs of HDB flats have further propelled the popularity of ECs. The pricing sweet spot, sitting between resale HDBs and private condominiums, has positioned ECs as an appealing choice for a growing number of Singaporeans. This becomes especially evident for HDB upgraders looking to make a significant leap in their property investments without incurring the full expenses associated with private condominiums.

Price Growth of Newly Launch and Resale ECs

The graph below illustrates the price trends and provides a comparison between newly launched ECs and resale ECs in Singapore over the past 3 years.

Source: Edgeprop market trends

While both newly launched and resale ECs exhibit a rising price trajectory, new launches command a premium at $1,450 per square foot (psf), surpassing resale ECs priced at $1,250 psf by $200 psf. However, resale ECs have seen a robust growth rate of 43%, outpacing new launches at 28%.

As EC prices continue their ascent, this article delves into potential investment opportunities, spotlighting noteworthy projects. Key considerations include the price gap and the influx of HDB upgraders, making these projects stand out in the competitive EC landscape.

Huge Price Gap

Source: URA

CapitaLand Group, UOL Group Limited, and Singapore Land Group Limited jointly secured a land parcel on 11 July 2023 at a winning bid of $884 psf ppr. This non-landed private mixed residential commercial project is anticipated to be jointly launched one year later at an estimated price of $1,970 psf.

Adjacent to this site, Tenet EC, launched on 3 December 2022, and the Tampines Street 62 project, confirmed as an EC, present attractive alternatives. All three developments boast proximity to the upcoming Tampines North MRT station and share similar surrounding amenities.

While Tampines Avenue 11 targets a higher-end market with its private property pricing, both Tenet EC and Tampines Street 62 EC offer a more affordable price point as ECs. The potential surge in demand for these ECs, driven by the premium pricing of Tampines Avenue 11, positions them as compelling alternatives. With heightened demand, there is a likelihood of increased capital appreciation for Tenet EC and Tampines Street 62 EC in the future, making them promising investment opportunities.

Source: URA

Furthermore, examining the provided graph highlights a substantial price gap between newly launched ECs and non-landed private residential properties. With a significant price differential between new launches in the OCR private residential sector and new EC developments, there exists ample opportunity for EC prices to ascend. This disparity enhances the undervalued nature of ECs, positioning them as promising assets with considerable potential for capital appreciation. This observation underscores the potential investment opportunities presented by Tenet EC and Tampines Street 62 EC. The significant price differential accentuates the attractiveness of these ECs as viable options for investors seeking value in their property investments.

HDB Upgraders Drive Demand

Source: URA

Above shows the different EC projects in the Tengah area. Altura EC and Copen Grand EC, with a competitive launch price of approximately $1,450 psf, demonstrate potential for capital appreciation through a promising price gap. Copen Grand EC’s rapid full sell-out within a month post-launch and Altura EC’s impressive 88% unit sales after the second balloting also highlight the evident demand from both genuine homebuyers and investors.

Additionally, the strategic location, surrounded by numerous HDB flats as depicted, offers a vast pool of potential HDB upgraders, thereby amplifying the demand for ECs. This heightened demand aligns with the typical trajectory of ECs serving as a stepping stone for HDB upgraders transitioning to private property.

The elevated demand for EC properties ensures a stable growth in their prices, providing a secure exit strategy for EC owners when they sell their property to upgrade in the future.

With limited units available in Altura EC, astute investors may find future investment potential in upcoming projects like Plantation Close EC, given the strong market response to neighbouring ECs such as Altura and Copen Grand.

How do I Choose Between New Launch ECs and Resale ECs?

When considering ECs, resale units emerge as compelling options, boasting advantages over new launches. Resale ECs stand out with fewer restrictions, the absence of a Minimum Occupation Period (MOP), proximity to privatisation, no income ceiling cap, and the appeal of being completed projects. Analysing the price trend, it’s evident that resale ECs exhibit a higher growth rate compared to their new launch counterparts. Most importantly, a distinction between the two is the Mortgage Servicing Ratio (MSR) that is applicable only to mortgage loans for new launch ECs and HDB BTO. 

MSR signifies the percentage of a borrower’s total monthly income allocated for repaying all property loans, encompassing the loan currently under application. Presently, the MSR is limited to 30% of the borrower’s gross monthly income. This ensures that borrowers maintain a reasonable proportion of their income dedicated to managing their property-related financial commitments.

Source: URA

With an income ceiling cap set at $16,000, the MSR for new launch ECs is effectively capped at $4,800 monthly. Calculated at the prevailing average interest rate of 4.7% across Singapore’s banks, this translates to a maximum loan amount of approximately $925,000. Consequently, potential buyers could only consider properties with a maximum purchase price of around $1.2 million.

Source: I Quadrant mortgage calculator

Source: Squarefoot

However, taking Altura EC as a case study, it’s evident that even the most budget-friendly 3-bedroom unit commands a price tag of around $1.4 million. For potential buyers, this implies an additional cash requirement of $200,000. Hence, while new launch ECs offer attractive features, they may not align with everyone’s budget unless substantial cash reserves are available.

On the contrary, resale ECs offer an enticing alternative to newly launched ECs. Unhampered by the income ceiling cap of $16,000 and MSR restrictions, buyers do not have to fork out extra cash to buy a similar priced resale EC unit at $1.3 million as they are able to take a higher amount of loan without the MSR restrictions. When considering these aspects in conjunction with the previously highlighted benefits of resale ECs, it emerges as an attractive option for property investors aiming for a more accessible entry point and looking to maximise the advantages of leveraging assets.

Final Thoughts

  1. Significant Price Gap Between ECs and Non-landed Private Residential Property

The widening price gap not only signifies room for EC property price escalation but also serves as a strategic indicator for identifying undervalued assets. Moreover, a substantial price gap solidifies ECs as a more affordable asset class compared to private residential property for homeowners seeking to ascend the property ladder.

  1. Pool of HDB Upgraders Offers Potential Upside for EC owners

A substantial pool of HDB upgraders contributes to a steady demand for ECs, ensuring a stable trajectory of price growth in EC properties. This robust demand also secures a reliable exit strategy for EC homeowners looking to sell their property for an upgrade in the future.

  1. Resale ECs v.s. Newly Launched ECs

We delved into the distinct advantages of opting for a resale EC over a newly launched one, highlighting the inherent flexibility and fewer restrictions that make resale ECs more favourable in the realm of property investment. Nonetheless, for investors wielding substantial cash reserves, exploring newly launched ECs remains a viable option, especially if they seek the allure of modern projects equipped with the latest facilities.

  1. The Next Step

While the current landscape appears favourable for investing in EC projects, it’s crucial to tailor property investment decisions to individual goals, risk tolerance, and specific criteria. If you’re curious about EC opportunities in different regions or require personalised insights, don’t hesitate to reach out to our experienced real estate professionals at Crestbrick. We’re here to guide you toward informed and strategic investment choices that align with your unique objectives.