The Straits Times published an article highlighting the prices for resale Executive Condominiums (EC) chasing up with private condominiums, with a mere 17.2% difference.
Mention was given that resale prices for ECs in suburb areas such as Hougang and Punggol see the biggest price gap in comparison with private condominiums.
Why are resale prices for ECs in District 19 (Punggol/Hougang/Serrangoon) seeing a bigger gap of 22.4%, while resale prices for ECs in the central region (Ang Mo Kio/ Bishan) see a smaller price gap of 10% in comparison with private homes? The article cited a few reasons which i tend to agree:
1) Recent land released by government for sale are concentrated in the North-East region (District 19), buyers who aspire to reside in the area has much more choices to choose from, some may choose to buy a newly launched EC due to better finishing offered, attractive discount schemes etc. Recent ECs launches in the region are Heron Bay and Waterbay.
2) Buyers are still location conscious, and are prepared to pay more to get a good location, especially when resale homes, regardless HDB, ECs or Private Condominiums, are harder to come by. This is especially when recent new private condominiums such as Sky Habitat at Bishan and Centro Residences at Ang Mo Kio are priced at averagely $1600 psf. An EC (especially those crossing the 10 years mark) at nearly half that price will be deemed a good buy!
Why is the price gap of ECs narrowing with Private Condominiums?
1) The facilities features and interior finishings are highly similar between an EC and a mass market condominium. When an EC obtains a ‘fully privatised’ status after 10 years, whereby buyers can sell to anyone in the free market, the difference between an EC and a private condominium becomes basically insignificant, except for being a different class of property. It is true, the resale buyer may not even be aware that the development is an Executive Condominium.
2) With more buyers seeing the money worth and growth potential in ECs, prices for resale EC will rise following the increasing demand, if we go by economic principles.
3) Increasing private condominium prices may cause some buyers to turn to a cheaper alternative, an EC, pushing demands higher.
Does this means ECs are better property investments?
There is no one correct answer to this magic question. I will attempt to give some points of considerations:
1) It is still location, location, location for real estate. Regardless whether it is an EC or private condominium, you can expect higher value appreciation in mature estates, and central regions as there are limited plots of land to be sold, so less new supply. With constant demand because of the good location, you can almost be very certain that you will make a handsome profit with time. In Singapore context, being near the MRT stations is also a mjor plus point, pushing your resale value higher.
2) New ECs these days may come with price-tags almost equivalent to the next-door mass market condominium as developers throw in prime finishes and other ‘luxe features’ to entice buyers. There is some risks involved here: If you buy an EC with a price almost equivalent to a private condominium, you will probably sell your unit at a near equivalent price with the private condominium in the next few years. An interested buyer comes along. With two almost equivalent price tag, interior finishes and facilities, he will most probably choose the private condominium. Only when there is a significant price difference, the EC will sell.
3) Right now the price gaps are closing in, prices will reach a point whereby buyers will start to see a better worth in buying the private condominiums compared to an EC again, demand of ECs will decrease and so will prices drop. Thus, i do not think that this closing in of price gap will sustain in the long term.
4) Opportunity cost. You can only sell an EC to a Singaporean or a Permanent Resident after 5 years, and only after 10 years the EC becomes fully privatized. There are also restrictions on renting out the apartment for the first 5 years. These are unlike a private condominium, where you can get rental returns immediately upon TOP. With the sellers stamp duty imposed by the government for the first 4 years, we see lesser property speculators. However, do remember, tax or no tax, at least you have the flexibility to sell the private condominium in an event of a market upturn!