Buying EC Today – Attractive or Over-hype?

The EC (Executive Condominium) concept was an innovative public housing initiative launch by the Government in 1997 for Singaporeans and PRs to enjoy “private property” without the huge price tag that comes with exclusive lifestyle living.

With a hot and expensive property market in recent years, more buyers have taken to ECs with government releasing ample lands for such developments.

Is buying an EC as attractive as before?

Or are ECs simply an over-hyped purchase?

Smaller unit sizes, therefore higher PSF prices

Executive Condos had penthouses sold at unrealistic high prices for an income ceiling of $12,000. The Government thus decided in January 2013 to limit maximum allowed apartment size in EC to 1,700 square feet.

In new EC launches, sizes like 860 square feet for 3-bedroom and 1,200 square feet for 4-bedroom are common. The sizes include an oversized balcony and A/C ledge, while the bedrooms can be small as 66 square feet.

Today’s unwitting EC buyers will thus pay higher per square foot prices to compensate for developers’ loss of profit margins. Whether paying such high per square foot prices will eventually turn a reasonable profit like previous EC buyers of the early 2000s pose a huge question mark.

Potential Oversupply of ECs

The number of ECs units available for re-sale will be met with a potential oversupply from both private properties and ECs that were massively launched in the last 5 years.

Since 1997 till 2004, there were only 14 ECs built and topped.

No executive condominium was built between 2005 to 2009, because HDB phased out EC scheme in favor of DBSS scheme. EC land sales was only resumed in 2010 with DBSS, and thereafter suspended DBSS land sales in 2011 in favour of EC.

From 2010 to 2015 alone, developers built and launched a total of 41 ECs!

In just 5 years, 23 out of the total 41 launches (56% of total launches) are located in the Sengkang/Punggol and Woodlands area.

Year 2012 and Year 2014 registered the highest number of ECs with 11 & 10 new launches respectively.

Whether with 5 – year MOP (Minimum Occupation Period) or 10-year private status conversion, these ECs entering the future re-sale property market will eventually face tough competition from a potential oversupply of private and existing EC units that were massively launched in the last 5 years of a booming property market.

Who’s going to absorb these supply?

ECs has lost the status of “exclusively limited” like in the past decade of the early 2000s.

It seems to have become “commonly unlimited” with so many such developments sprouting up within a short 5-year time span and beyond.

Potential Oversupply of private properties

As at the end of 2nd Quarter 2015, there was a total supply of 61,237 uncompleted private residential units (excluding ECs) in the pipeline, compared to the 68,201 units in 1st Quarter 2015. Of this number, 24,435 units remained unsold as at 2nd Quarter 2015. After adding the supply of 14,701 EC units in the pipeline, there were 75,938 units in the pipeline.

Based on expected completion dates reported by developers, 13,191 units (including ECs) will be completed in second half of 2015.  Another 25,841 units (including ECs) are expected for completion in 2016. In comparison, 23,298 units (including ECs) were completed in 2014.

In recent years, plenty of mass market sub-urban condos and apartments have been sprouting all over Outside Central region (OCR). Like it or not, ECs that meet the 10-year private conversion status will be facing tough competition from these many private mass market properties.

Buyers will have plenty of choices. Sellers cannot be choosy then.

Ageing Population & Low GDP Growth  

Singapore had enjoyed “favourable” demographics for the past five decades, with a post-war baby boom. Within a generation, the nation was able to educate baby boomers, create enough jobs for them and make them wealthier through rising home prices. We saw how our parent’s generation profited from rapid rising HDB prices since 1965. This wealth was passed on subsequently to the next generations.

Between 1965 and this year, Singapore’s population grew from 1.9 million to 5.5 million. However, the number of citizens aged 65 and above is increasing rapidly, as population growth slows. The size of this group of citizens doubled from 220,000 in 2000 to 440,000 today, and is expected to increase to 900,000 by 2030.

Last year, the total population here grew by 1.3 per cent — its slowest pace since 2005, while total fertility rate continued to fall despite the Government’s incentives and encouragement.

This aging population will eventually have a profound impact on every segment of the property market and society as a whole.

Like private properties, ECs that reach their 10 year private conversion status between 2025 to 2030 will potentially experience negative impacts of an aging population – Low population growth, low consumption and low GDP growth will curb any price appreciation if any.

All of these will happen within the next couple of decades. Notwithstanding any shocks to the global economy, we shall see what luck brings to buyers who have overpaid for properties in recent years.

An expensive home is a miserable investment

If a buyer were to buy an EC purely as a home with excess cash reserves for future investments, then perhaps it’s a personal consumption choice.

For marginal buyers, an expensive home is a miserable investment. Whether private or public housing, it costs money every month to own, requires long-term debt slavery, and will probably never gain more value than the amount it costs you to hold each month if you have bought it over-valued. Think about it – if you are spending $2,000 per month on a mortgage payment and another $500 on maintenance – you are losing over $30,000 per year on that deal. Do you really think that home is gaining $30,000 per year in value, every year especially when it’s bought at the peak of the market?

This is especially so for EC and private property buyers who bought during the peak of 2013 on-wards.

Most EC buyers (marginal in most cases) will have done financially better by staying put in their previous HDB flats and avoid upgrading of homes. Why take up a bigger mortgage than necessary when owners would either have very little mortgage left on their remaining loans or loans that are fully paid up. Might as well be called “Home Down-Graders” since they are obligated to work longer hours in jobs they dislike to keep up with hefty mortgage payments.

Younger couples should start off buying a cheaper new HDB flat or re-sale instead of an over-valued EC. They could have used that excess savings to purchase private properties as greater investment at opportunistic prices when the property market bottom in the coming years.

A Potential Poor Return on Investment? (Is EC is even an investment?)

Most ECs of the last decade were launched in a lull property market. Bishan Loft EC was launched in 2000 and TOP 2003 – during one of the lowest periods of the property market. It was also the only EC in the entire Bishan area and remains one even today, and therefore commanded a price hefty premium in the hot re-sale market of 2013. Nouvo in Ang Mo Kio is another good example.

With many recent ECs launches at over-valued prices during a hot property market with a potential oversupply in future, what makes current EC buyers think they are going to profit like their predecessors did?

They may not lose money but it’s still in the cards if they are going to even make sensible profits. This is above years of job slavery to support higher mortgage payments while waiting to sell. It’s definitely a poor return on “investment” if one may even call an EC an “investment”. These buyers may alternatively do better financially buying new Singapore government bonds for the next 10 years.

EC buyers of the previous decades, like our parents who first bought HDB flats in the early years were fortunate enough to profit successfully. In truth, their success rest on first-mover advantage, a rising property market, high GDP growth and…. of course luck. Only the first of those is truly their own.

For EC buyers who bought since 2013, they may be in for a disappointment. The property market was peaking and cluttered with many new EC and private properties launches of the last 5 years from a booming property market.

With the huge number of recent EC launches, the concept of EC may NO longer be “unique” or “very profitable” compared with the limited number of ECs that were launched in the previous decade of the early 2000s.

Financial Dumb  - Unethical EC Buyers

Scared” home buyers: Scared of prices rising beyond affordability so they buy a property for more than what it is worth, coupled with a “foolish” belief that a future 6.9 million population will support or boost future property prices.

Unethical and desperate Buyers: Desperate property buyers who cannot afford to enter the private property market but want to for fear of “missing the boat”, instead choose to use EC as an alternative property investment via current loop holes.

These buyers used parent’s name to purchase an EC while staying in current HDB. Their intention is to flip for profits in 5 years after MOP.

Some buyers already own a current EC which is still within MOP, yet buy another new EC under parent’s name. Entering the expensive private property market was beyond their means. Buying an EC was the only viable “money-making” option left open for such buyers who seem desperate to own an “investment” property.

Not only are such buyer’s actions morally unethical, it reeks of financial dumb.

The Real Rich Gets Richer, the Middle-Class Gets Poorer. (Now you know why)

EC has always been an alternative choice of public housing by the government – For Singaporeans and PRs looking for a shelter over their heads and never an alternative for price speculation or greed. Public housing should stay as that. If speculative EC buyers want to gamble, they should go to the Marina Bay Sands instead.

By purchasing an expensive new EC, buyers locked themselves up with 4 years to TOP plus 5-year MOP and TDSR obligations. That’s a total of 9 years in waiting and 14 years to privatisation. It seems an awful loss in cost of opportunity to simply own an over-valued HDB flat as an investment. If one were to invest similar amount of money in the similar period of time in a great business or other assets that will generate better returns and income, ordinary buyers will never have to worry about retirement.

That’s the simple reason why the real rich always gets richer and the middle-class gets poorer. The real rich makes intelligent investing and have a strict discipline to avoid buying instant gratifications while building their wealth. The middle class eagerly wants to own over-valued conspicuous materials to be socially accepted or thinks such purchases are “investment” material.

Should the private property market bottom in this period and private properties become great buys again, these buyers will be financially unable to take advantage of such rare opportunities. So back to decades of job slavery again to own an expensive “cage” in the sky.

How do their imprudent actions even make sense financially is hard for any savvy individuals to contemplate.

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To your investment success,

Gerald Tay


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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