Real Estate Foresight Special Commentary on Executive Condominiums OrangeTee Research & Consultancy Email: research@orangetee.com Website: www.orangetee.com On July 30, tenders for three executive condominium (EC) sites will close on the same day. This unprecedented timeline has been designed by the Government to moderate tender bids and rein in private property price growth. The previous practice of staggering deadlines allowed developers to wait and see if they won one tender before submitting a bid for the next. The rationale for the new move is that developers are unlikely to bid for multiple tenders on the same day due to resource constraints. This could help to lower the number of bids and tender prices. It will be a keenly watched event as observers track if the new move will bring down the number of bids per site and affect the quantum of the winning bids, given the bullish offers for recent state tenders and the strong take-up rate for ECs. Exhibit 1: Projects fully sold as of June 2013 Launched in The Canopy Esparina Residences Prive Austville Residences Belysa Blossom Residences RiverParc Residence Arc at Tampines The Rainforest Twin Waterfalls Heron Bay Waterbay CityLife@Tampines Exhibit 2: Projects with unsold units as of June 2013 100% 2010 2011 2012 0 1 2 3 No. of Years 80% 60% 40% 20% Research & Consultancy Christine Li Head 0% The Tampines Trilliant 1 Canberra Watercolours The Topiary Twin Fountains* Forestville* DING Chun Senior Research Analyst No. of Units Sold in % * Twin Fountains and Forestville were launched in May 2013 and June 2013 respectively Please note the terms of use on last page. Page 1 of 6
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Executive Condominium, a hybrid of public and private housing, has grown popular among buyers in recent years. The scheme was first introduced in 1996 when private home prices were at their peak to cater to the needs of the sandwiched class. This group of buyers cannot afford private properties, but at the same time does not qualify for HDB flats, as their household incomes have exceeded the $10,000 income ceiling. Like any regular condominiums, ECs are designed and built by private developers, but come with restrictions. For example, buyers of ECs have to form a family nucleus, which must comprise at least two Singapore citizens, or one Singapore citizen and one permanent resident (PR). There is also a minimum occupation period (MOP) of five years before one can sell it in the open market. ECs can only be sold to foreigners after 10 years when they are fully privatised. Since 1996, a total of 57 EC sites have been launched or announced. This is inclusive of the five confirmed EC sites which will be sold in the 2H2013. EC launches stopped for about six years from 2005-2010 when demand plunged due to poor market conditions. However, as the price gap between HDB and mass market private properties widened, EC scheme was re-introduced into the market in 2007 and first two sites were successfully sold in 2010. ECs met with some initial resistance due to competitions from the Design, Build and Sell Scheme (DBSS) flats in early days. As recently as 2011, the Housing Board was still launching DBSS to cater to the "sandwiched" middle-income buyers. The locations of DBSS flats were better and many "sandwiched-class" buyers opted for DBSS flats, which are often cheaper than ECs. DBSS flats - essentially HDB flats with better designs - cannot be resold to foreigners, unlike ECs, which become fully privatised after 10 years. Also, DBSS buyers' monthly household incomes cannot exceed $10,000, against $12,000 for EC buyers. Faced with a slow take-up rate in 2011 and last year, when some ECs were only 30% sold two months after their launch, developers had to offer better value for money to attract the same group of buyers. This has kept EC prices in check. However, when DBSS scheme was suspended and the income ceiling for ECs was raised from $10,000 to $12,000, EC regained its momentum towards the end of last year. For the first half of 2013, the take-up rate for EC is a healthy 156%, far exceeding that of the non-landed private residential properties (the take-up rate for non-landed private residential properties in the 1H2013 is 100%). Exhibit 3: No. of units launched and sold Year Launched Sold Take-up Rate 2011 2,535 2,883 114% 2012 4,936 4,499 91% 2013* 1,071 1,667 156% Exhibit 4: Median unit price of new sales, in $psf 1,200 S$psf 1,110 1,000 800 748 747 600 101% 400 371 200 0 Median Price Non-landed(exclude EC) Please note the terms of use on last page. Page 2 of 6
Exhibit 5: Take-up rate in the first 2 months Project Name * First month s data only Total Units No. of Units Sold in the first 2 Months Take-up Rate in the First 2 months ESPARINA RESIDENCES 573 519 91% THE CANOPY 406 207 51% PRIVE 680 534 79% AUSTVILLE RESIDENCES 540 157 29% BELYSA 315 315 100% BLOSSOM RESIDENCES 602 365 61% RIVERPARC RESIDENCE 504 394 78% ARC AT TAMPINES 574 378 66% THE RAINFOREST 466 355 76% THE TAMPINES TRILLIANT 670 338 50% TWIN WATERFALLS 728 625 86% 1 CANBERRA 665 235 35% WATERCOLOURS 416 218 52% HERON BAY 394 370 94% WATERBAY 383 305 80% CITYLIFE@TAMPINES 514 491 96% THE TOPIARY 700 387 55% TWIN FOUNTAINS 418 324 78% FORESTVILLE* 653 226 35% Average 68% Private residential land prices have risen quite significantly over the last two years, with the average rate of increase in hot spots such as Queenstown, Sengkang and Pasir Ris ranging between 33 and 40 per cent. Land prices for EC sites, however, seem unaffected by the upward spiral of private residential sites. Compared to private residential sites, they have risen by a much smaller margin. Over the past year or so, bids have largely been range-bound at between $300 and $340 psf ppr. Almost all 12 EC projects launched since October 2011 are selling at between $700 and $799 psf. Not once has any EC project's average selling price crossed the $800 psf mark. There are a few reasons for this. ECs still come under the purview of the Government. Developers have to release the indicative prices at least two days before the booking date. This is not the case for private residential projects. At the same time, EC developers are mindful of the income ceiling of buyers and their affordability. Permanent residents and foreigners can buy private properties, but not ECs. These buyers make up about one-fifth of the mass market demand. Stable outlook with buoyant demand Going forward, we are in the view that the new batch of ECs coming on stream after the 15-month waiting period could be setting benchmark prices at about $820-840 psf, if Singapore's economic fundamentals stay intact or show improvement when developers are ready to launch them next year. The construction cost for ECs has risen by about 20%. The average construction cost for EC sites sold in 2011 and before was around $210 psf, but it has increased to about $250 psf. The new rules requiring developers to pay charges for outdoor spaces open to the sky are likely to raise the average selling prices of units with private enclosed spaces, such as roof gardens. In addition, the 15-month waiting period could result in some pent-up demand from EC buyers. Please note the terms of use on last page. Page 3 of 6
2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 We also believe that demand for EC will remain buoyant due to the widening of price gaps between mass market condominiums and ECs. In the second quarter, the median price of new mass market homes was $441 psf, or 59 per cent higher than that of ECs. The difference is much wider than in the same period a year ago, when the gap between mass market homes and ECs stood at $237 psf, or 32 per cent. Exhibit 6: Difference in median prices between mass market projects and ECs 1,400 S$psf 1,200 1,000 800 233 333 260 259 257 361 237 190 332 333 441 600 400 200 0 Private Property (OCR) Executive Conodominium Exhibit 7: Comparison of projects in the vicinity Project Name Watercolours Ripple Bay Seastrand Sea Esta Area: Pasir Ris Pasir Ris Pasir Ris Pasir Ris Dist. Apart (m) 0 207 119 191 Launch Date Jun-12 Apr-12 Jul-11 Jun-12 Type EC Condo Condo Condo Ave. Price (Psf) $714 $882 $926 $891 Project Name Twin Fountains Forestville Parc Rosewood Woodhaven Area: Woodlands Woodlands Woodlands Woodlands Dist. Apart (m) 0 179 1,589 1,799 Launch Date May-13 Jun-13 Feb-12 Jun-11 Type EC EC Condo Condo Ave. Price (Psf) $744 $730 $891 $942 One reason for this gap is that private condominium units are shrinking in size, resulting in higher psf prices. In contrast, EC units are typically bigger, selling for a lower psf price. Even so, the gap is too big to be ignored. Data from the resale market shows that once ECs are fully privatised, the price gap between mass market homes and ECs narrows to as little as 5 per cent. This makes the current ECs in the market even more attractive, as there is potentially higher capital appreciation. Buyers are more inclined to purchase EC projects because they are deemed a "surewin" bet as investments. Please note the terms of use on last page. Page 4 of 6
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Exhibit 8: Sizes of ECs 5,000 sqft 4,500 4,000 4,347 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1,130 742 Median Size Smallest Size Largest Size Exhibit 9: Total Balance of 213 units Project Name Street Name Developer 1 CANBERRA CANBERRA DRIVE MCC Land (Singapore) Pte Ltd Total No. of Balance Units in Project Units 665 82 HERON BAY UPPER SERANGOON VIEW Serangoon EC Pte Ltd 394 1 THE TAMPINES TRILLIANT TAMPINES CENTRAL 7 Sim Lian (Tampines EC) Pte Ltd 670 8 THE TOPIARY FERNVALE LANE Peak Living Pte Ltd 700 16 TWIN FOUNTAINS WOODLANDS AVENUE 6 FCL Admiralty 418 102 WATERCOLOURS PASIR RIS LINK HUGE Development 416 4 Exhibit 10: Future Supply of 3,775 units Project Name Street Name Developer Total No. of Units in Project Balance Units SEA HORIZON PASIR RIS DRIVE 3 Hao Yuan Investment 580 580 NEW WATERWOODS PUNGGOL FIELD WALK/ PUNGGOL EAST Sing Holdings 373 373 LUSH ACRES SENGKANG WEST WAY Verspring Properties 380 380 SEMBAWANG CRESCENT SEMBAWANG DRIVE JBE Holdings 650 650 WOODLANS EC WOODLANDS AVENUE 5 Qingjian Realty 590 590 ANCHORVALE EC ANCHORVALE CRESCENT Qingjian Realty 690 690 ECOPOLITAN PUNGGOL WALK Qingjian Realty (Punggol Way) Pte Ltd 512 512 Under the new total debt servicing ratio (TDSR) framework, financial institutions may exclude the monthly repayment of the EC buyers' existing home loans in computing the TDSR, provided these buyers sell their existing properties within six months of Please note the terms of use on last page. Page 5 of 6
taking possession of the EC. As a result, EC is the least affected market segment after the implementation of the new lending curbs. In sum, EC market will not be short of buyers. The widening price gap between mass market homes and ECs, the partial exemption from the new TDSR framework, as well as the availability of the housing grants make ECs relatively affordable. The average subscription rates for ECs in 2013 have been healthy and we expect the demand to sustain in the near to mid-term. However, should the transaction volume for new homes slow down drastically, we do expect some pullback in the EC market as buyers turn cautious. The downside risks in the near term are the potential rise in interest rates and the supply situation in the next two years. Barring external shocks in the market, ECs are still the safest bet for developers and buyers alike. Terms of Use: The reproduction or distribution of this publication without the express consent of the author is prohibited. This publication is provided for general information only and should not be treated as an invitation or recommendation to buy or sell any specific property or as sales material. Users of this report should consider this publication as one of the many factors in making their investment decision and should seek specific investment advice. OrangeTee.com Pte Ltd and the authors of this publication shall not accept and hereby disclaim all responsibilities and liability to all persons and entities for consequences arising out of any use of this publication. Please note the terms of use on last page. Page 6 of 6