Exec condo market facing potential headwinds

SINGAPORE - The executive condominium (EC) market is facing a potential supply glut as the government rolls out a record number of EC sites.

A total of 25 EC sites (from both Confirmed and Reserve list) were released to the market via the Government Land Sales (GLS) programme between H1 2010 and H2 2012.

This year, 11 sites were put on the Confirmed List (one site was moved from the Reserve List in H1 2012 to the Confirmed List in H2 2012).

The site at Upper Serangoon View/Upper Serangoon Road (developed into Heron Bay) has since been launched for sale.

Of the remaining 10 EC sites, five have been sold and are awaiting developer's sales launch.

The remaining five have not been launched yet for sale under the GLS programme, or are waiting for the tender period to close.

Some 5,600 units from these 10 sites are expected to come on stream by end-2013, which translates to an average annual supply of 4,500 units, said Ong Teck Hui, national director, research and consultancy, at Jones Lang LaSalle (JLL).

By comparison, the average annual supply over the last two years has been about 3,600 units, with average take-up of 3,300 units.

"Viewed from this perspective, the oncoming supply is at a faster rate than the past. Assuming demand remains stable, the projects being marketed would face greater competition ... It's likely to be more of a buyer's market given the wide range of projects coming on stream with the possibility of prices being more competitive," said Mr Ong.

Location is another key factor, said Png Poh Soon, head of research at Knight Frank Singapore. "Certain locations may see heightened caution from developers arising from strong competition from existing unsold and uncompleted mass-market condos and EC developments."

In Pasir Ris, for instance, adjacent condominium developments, such as Sea Esta, Ripple Bay, Watercolours (EC), and Seastrand still have about 385 unsold units in August 2012, noted Mr Png.

There is also the record allocation of some 27,000 Built-to-Order (BTO) flats to contend with.

"Some (home-buyers) are becoming more prudent as the global economy slows down ... (these buyers) may defer their upgrading decisions, or opt to go on a safer BTO option, particularly for first-timers," said Mr Png.

That BTO flats are significantly cheaper than EC units - even though both are subject to the same Housing Board rules - may push potential buyers towards BTO flats.

Said Savills Singapore's head of research, Alan Cheong: "The upper limit pricing for Waterway Sundew at Punggol ranges from $310-$373 psf built-in. The gap of about $400 psf (for ECs) is quite substantial."

Potential buyers have to fulfil certain criteria, too.

For instance, their combined household income must fall below $12,000 and they must be a married Singaporean couple.

"Given the increasing supply of EC sites, developers may turn in conservative bids to account for these constraints," Mr Cheong said.

The fact that dual ownership of a HDB unit and EC is not allowed also limits the pool of buyers.

Said Lee Sze Teck, DWG's senior manager, training, research and consultancy: "Current HDB owners have to sell their HDB flat when they take possession of their new EC ... But a HDB owner can own both a HDB flat, and a private property. For those who want to rent out their HDB flat, they will buy a private property instead of a new EC."

There is also a worrying trend of BTO flats being sold under the Sale of Balance Flats exercise, noted Mr Lee.

"This means that in certain towns, such as Sengkang, Punggol, and Yishun, quite a number of flats from the BTO launches were not sold. Choa Chu Kang is another location where there were a number of unsold HDB flats from 2012 BTO launches," said Mr Lee.

Despite these factors, demand for ECs may remain strong based on historical performance.

"The income ceiling revisions for new HDB flats and ECs as well as the increased supply of BTO flats were announced in August 2011. From September 2011 to August 2012, 3,519 ECs were launched for sale and 3,572 units were taken up," said JLL's Mr Ong. "(This) shows that demand for ECs remained strong in spite of the knowledge that BTO supply would be increased."

Eugene Lim, key executive officer at ERA Realty Network, does not expect demand for ECs to fall.

Interest in EC sites has been keen following the raising of the income ceiling to $12,000 in August last year, he said.

"EC demand will continue to remain healthy especially after the government increased the allocation limits for second-timer buyers from 5 per cent to 30 per cent of units in the first month of an EC project's launch," said Mr Lim.

However, Ong Kah Seng, director at R'ST Research, expects demand for ECs to moderate, as buyers turn their attention to project-specific attributes, such as location and design.

"Recent EC projects have generally been of better quality and theme. They are also well designed, reflecting initial signs of intensifying competition among developers," noted Mr Ong.

Heron Bay offered novel features such as a jacuzzi-cum-pool of up to six metres for some ground floor units.

The project in Upper Serangoon View was 4.2 times oversubscribed.

Other examples of projects that have sold well include Esparina Residences, Prive and Riverparc Residences.

These sites were sold in March, June and September 2010, giving them some early-mover advantage in terms of timing and meeting the demand gap then, said Knight Frank's Mr Png.

"Some of the more recent ECs have seen slower sales as home buyers are spoilt for choice, particularly if the new launches are near to each other," he added.