ECs: Gaining value over the long term

Demand for Executive Condominiums (EC) has slowed sharply in the past two years, following the introduction of cooling measures by the Government. Demand for the hybrid housing type was red hot in 2012 to 2013, when 14 out of 16 new EC projects were at least 33 per cent sold within the first month of their launches.

To cool the EC market, the Government implemented measures in late 2013, including a 30 per cent Mortgage Service Ratio (MSR) and a resale levy for second-time buyers. These measures successfully clamped down on EC demand and, in 2014 to 2015, only one out of the 11 new projects managed to sell at least 33 per cent within the first month of their launches.

MSR, a loan curb to promote financial prudence, dictates that mortgage payments must be within 30 per cent of the borrowers’ monthly income. A resale levy is also imposed on buyers who had previously owned and sold a subsidised flat and now wish to purchase an EC from a developer where the land was launched or sold on or after Dec 9, 2013.

ECs were first introduced in 1996 as a public-private housing hybrid catering to the sandwiched income group, which, in today’s context, are households with incomes ranging from S$12,000 to S$14,000. Like regular condominiums, ECs are designed and built by private developers. EC buyers have to fulfil a Minimum Occupation Period (MOP) of five years before they can sell it in the open market to Singaporean and PRs. ECs can be sold to foreigners only after 10 years, when they are fully privatised.


As ECs are pretty much condominiums with added restrictions, there is an embedded capital appreciation mechanism as the sale restrictions are lifted. After the five-year and 10-year marks, the price of an EC tends to “catch up” with that of a private condominium.

Based on an analysis on a basket of comparable ECs and condos, the average price gap between new condominiums and ECs is found to start about 20 per cent. This means a typical new EC is sold at a 20 per cent discount from the price of a comparable new private condominium.

The large price gap at launch can be largely attributed to the sale restrictions imposed on ECs and the difference in land and construction costs. Unlike private condos, ECs still fall under the purview of the Government and developers have to be conservative in their pricing.

Upon fulfilment of MOP, and at privatisation, the discount narrows to 9 per cent and 5 per cent, respectively. At the end of the MOP, ECs can be sold in the open market to Singaporeans and Permanent Residents (PRs). As most ECs are located in Outside of Central Region (OCR), or suburbs, where demand is largely driven by Singaporeans and PRs, much of the capital appreciation is achieved immediately after MOP is completed. Upon privatisation, ECs can be sold to foreigners, increasing the potential demand pool. However, as the increase in demand is not substantial, the price gap only narrows marginally.


There are 21 EC developments that are more than 10 years old and have been privatised. By matching caveats, we analysed their percentage profits at the completion of their MOP and at privatisation. The results show that not all ECs are “sure-win” investments at MOP.

Out of 21 projects, 13 projects made a loss after MOP completion, and the remaining eight projects managed gains of more than 20 per cent. Market timing was the main differentiating factor between the “losers” and “winners”. The 13 projects that sold at a loss at MOP were launched during 1996 to 1999. In 1996, just before the 1997-1998 Asian Financial Crisis, property prices were at their peaks. Projects that were launched during 2001 to 2005, a period of sluggish growth, managed to achieve returns of at least 25 per cent at MOP. These projects benefited from the subsequent upturn of the Singapore property market.

At privatisation, all the EC projects were profitable. Notably, three developments stood out: Bishan Loft, Nuovo and The Dew. These three projects managed to achieve better returns compared with their peers due to their good locations and surrounding available supply.

On the other hand, the bottom three — Windermere, Chestervale and Pinevale — managed gains of less than 10 per cent at privatisation. These projects have greatly underperformed the market, considering the long investment time frame. They were launched at peakish prices, which made it difficult to achieve substantial profits in subsequent years.


There were 1,540 vacant EC units as of the end of 4Q15, according to data from the Urban Redevelopment Authority (URA).

Currently, the EC vacancy rate stands at 8.4 per cent. The increasing number of vacant EC units can be largely attributed to the increasing number of completed supply and the time lag between project completion and owners moving in.

But it is plausible that some owners are buying ECs purely for investment purposes and are choosing to leave it empty during the MOP. However, does it make sense for an eligible buyer to purchase an EC (leaving it empty during the MOP) or a condominium unit, purely for investment purposes?

In a hypothetical scenario, we assume that a couple is looking to invest in either an EC or a private condo. They have another home for occupation, perhaps their parents’, which is not under their names, and they plan to leave the EC unit empty during the MOP.

In today’s market, the median unit cost of an EC is S$797 per sqf. For a 1,098sqf unit, the purchase price will be about S$875,000. Applying the aforementioned 20-9-5 per cent price gap between condos and ECs, a comparable condo unit would cost S$1,094,000.

We assume they have a household income of S$14,000 and take up a mortgage of 80 per cent loan-to-value (LTV) for 25 years at a fixed rate of 2.5 per cent per annum. Rents for the unit are fixed at S$3,000 a month during the period of 10 years. For simplification, other costs such as stamp duties, maintenance fees, taxes, have not been included in this example.

Five years after completion, we assume that the value of the condo has appreciated by 10 per cent. Assuming the price gap between condos and ECs narrows to 9 per cent upon fulfilment of MOP, the EC should have appreciated by 25 per cent.

Despite the superior capital appreciation ECs enjoy in the first five years, the private condo still outperforms the EC in the mid-term (five years). This is because the rental income from the condo can be used to offset the monthly mortgage payments, whereas an EC cannot be fully rented out during the MOP.

Therefore, the EC investment incurs higher net holding costs in the first five years compared with the private condo, and these overwhelm the superior EC capital appreciation.

However, at privatisation, the EC would outperform a private condo, assuming the condo appreciates by 20 per cent and the price gap narrows further to 5 per cent. After MOP, the couple can now rent out the entire EC and mitigate their holding costs. With holding costs significantly defrayed by rental income, the capital appreciation effect in ECs can dominate. As such, the EC is now able to outperform the condo, 10 years after MOP.

According to the results above, it seems that buying an EC and leaving it empty for the first five years would be an inferior investment compared with buying a private condo and renting it out. Despite the higher condo price tag, net holding costs are lower due to rental income.

However, in the longer term, the EC would prove to be a better investment. This is mainly due to the lower initial purchase price and the inflow of cash due to rental income (year six to year 10) as restrictions are lifted.


With the current measures cooling the market, EC prices have come off their peaks and have started to move towards the S$750 to S$770 psf range. Previously only constrained by the Total Debt Servicing Ratio framework (TDSR), new ECs are now bound by a 30 per cent MSR, which has shrunk the current demand pool. Developers have also moved to ensure that new units remain affordable.

However, after the five-year MOP is completed, resale ECs would not be placed under the 30 per cent MSR restriction and would only be bound under the TDSR framework. This would expand the demand pool and should bode well for EC prices.

In summary, ECs are poised to be a good long-term investment, given their subsidies and lower prices compared with private condos.

Based on historical data, first-hand owners of currently privatised ECs are sitting on considerable gains.

However, not all ECs are equal: Depending on the location, available surrounding supply and price, the rate of capital appreciation can differ drastically between projects.

By Ms Celine Chan and Mr Wong Xian Yang – research analyst and senior manager of research at property firm OrangeTee.

Source : Today – 26 Feb 2016

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