Analysts expect strong interest in executive condo developments

Executive condominiums (ECs) are back in the spotlight, amid a buoyant property market. They come with finishes similar to a private condominium, but are priced more affordably.

Analysts expect strong interest for two new developments to be launched at the end of the year. But they also caution buyers against being too hasty.

When the Eastvale executive condominium in Pasir Ris was launched, units were going for about S$400 per square foot. A recent sale went for S$600 per square foot, comparable to similar private properties in the area.

Executive condominiums were launched in the mid-1990s, and Eastvale was one of the first projects. They cater to the needs of the “sandwiched” class – buyers who could not afford private properties, but whose household incomes exceed the income ceiling set by the Housing and Development Board (HDB).

Now 15 years on, calls by the “sandwiched” class for more affordable housing are growing, and housing authorities said executive condominiums will form 10 per cent of new flats built this year.

For first-time home buyers, they can apply for a S$30,000 housing grant, as long as monthly combined incomes do not exceed S$10,000. And after a period of 10 years, they can sell them in the private property market.

In line with HDB rules, these units are first subject to a five-year Minimum Occupation Period, after which they can be sold only to Singaporeans and Permanent Residents (PRs).

With interest rates remaining low, it sounds like a good deal. But with a economy recovering, analysts cautioned that interest rates could head higher.

Colin Tan, head of Research & Consultancy at Chesterton Suntec International, said: “Because of all the various government stimulus spending, interest rates have been kept artificially low for quite a long time.

“With a low interest rate environment, it’s easy to put money down and meet the mortgage instalments. But when interest rates double or triple, you expect your mortgage to be doubling or tripling. So the question is, are you able to sustain that.”

Analyst Mohamed Ismail of Propnex said that while such developments perform well in the resale market during boom times, resale prices tend to go down much faster than similar private properties when the market hits a snag.

Tan agreed, saying it is hard for ECs to shake off their image as the “poorer cousin” of private condominiums. One reason is because developers may compromise on the quality of finishes in order to meet the budgets of buyers.

So if the private property market is subdued, as it was in the post-SARS years, then between an executive condominium and a private one, buyers would be more willing to fork out for the latter.

Chua Yang Liang, head of Research (Southeast Asia) of Jones Lang LaSalle, said the increase in executive condominium projects may not impact greatly on the private property market as EC buyers are a select group of buyers, most likely the “sandwiched” class.

He said entry-level mass market private home prices have averaged S$800 per square foot in recent months, and the executive condominiums will have to be priced lower.

“Going by the recent transactions, it’s averaging about S$550 to S$650 psf, so pricing in that market would be around that region – S$550, S$650, and S$750 psf, that kind of range,” said Chua.

Source : Channel NewsAsia – 15 Mar 2010

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