Expected to still sell: ECs benefit from bigger buyer pool

Forestville EC Site

The many executive condominiums (ECs) heading to the market can be absorbed thanks to the expanded pool of buyers generated by changes to the income ceiling.

The Government increased the monthly household income ceiling from $10,000 to $12,000 in August last year so it is unlikely an oversupply will arise.

Figures from the 2010 Census show how this policy change has expanded the buying pool.

There were 72,065 households in Housing Board (HDB) four-room flats or larger earning between $8,000 and $10,000 in 2010.

This segment used to be the target market for buyers of ECs as the income ceiling for HDB flats was $8,000 then.

Department of Statistics figures, also from 2010, show that there were around 46,000 households in HDB four-room flats or larger that earned between $10,000 and $12,000.

The increased income ceiling means these 46,000 households are also eligible for ECs.

This enlarged pool of buyers can soak up the supply from the string of new launches since the EC segment was reintroduced in 2010, say experts.

There were about 6,500 EC units in the pipeline as at Sept 30 with an additional 3,100 potentially in the mix from sites that could be sold in the land sales programme for the first half of next year.

There had been concerns that the bumper supply of EC plots pushed out by the Government to cater to the so-called "sandwiched class" might lead to a glut.

But even Punggol and Sengkang, where almost half of the EC units in the pipeline are in, face little oversupply risk.

This is because the ratio of private homes to public ones in these two areas is still expected to be lower than the islandwide average in 2016 when the projects are completed.

There is no price difference between an EC and condo in the resale market if both have similar location and quality attributes.

That makes economic sense for buyers to get a new EC as the price gap will close when the initial restrictions are lifted five years after completion.

Competition for EC sites has become more aggressive recently.

If land costs keep rising, units in new EC projects will be more expensive, although mortgages will remain affordable.

The mortgage repayment only becomes more taxing for units priced above $1.45 million if interest rates rise to 4 per cent eventually.

ECs combine elements of private and public housing and often have premium furnishings and facilities but are subject to HDB rules that specify a monthly household income cap of $12,000.

They are subject to a minimum occupation period of five years. They can then be sold only to Singaporeans and permanent residents. They become private property after 10 years and can be sold to foreigners.

Source: The Straits Times –20 December 2012