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Executive condo buyers’ options to dwindle in 2017

May 31, 2016

The Executive Condominium (EC) market started off to a good in 2016, with the first launch of the year, Wandervale receiving a favorable market response. Located in Choa Chu Kang, the 534 unit project sold 292 units in March. This translates into a sold out rate of 55 percent during their month of launch, and has outperformed 2015 launches when comparing their sales during initial launch. Another 2 more EC projects; Frasers Centrepoint Limited (FCL) and Keong Hong Holding’s Parc Life and QingJian’s The Visionaire, both located in Sembawang, also drew strong interest from buyers. However, despite the warm reception these projects have garnered, the supply of executive condos is set to see a decline in the coming years.

Located in Sembawang, Parc Life is one of the few executive condo offerings launched in April this year

Located in Sembawang, Parc Life is one of the few executive condo offerings launched in April this year

Executive condo choices taper in 2017

On the back of the slowdown in the executive condo market, the EC supply in the Government Land Sale (GLS) Programme has been tapered. Only 3 new executive condo sites were released in 2015, which would yield about 1,010 EC units. This is about 72.6 percent lower compared to 2014, when 7 sites were released, yielding a potential 3,685 units. In H1 2016, there was only 1 site released, which could potentially yield a total of 635 units. However, the impact from the tapering of GLS sites would only be apparent in 2017, due to the time lag between the launch of the site in the GLS programme and the actual project launch into the market.

Currently, the average time period between an executive condo site being launched in the GLS programme to market launch is typically about 17 months and above. For example, an executive condo site launched in H1 2015 can be expected to enter the market at around H2 2016 or later. The time difference between the launch of a GLS land tender and the tender award is about 2 months.

Additionally, for EC land acquired after January 2013, developers are only allowed to launch units for sale 15 months from the date of award of the EC site, or after physical completion of foundation works, whichever is earlier. 3,750 EC units were launched in 2015, and in 2016, about 3,311 units are expected to be launched into the market. However, the number of executive condo launches in 2017 is expected to fall substantially, with only around 1,010 units to be launched.

Will developers cut prices?

Though upcoming projects may be launched at lower prices to entice buyers, it is unlikely that we will see excessive price cuts across the board for existing projects. There are a few reasons for this:

1. The upcoming executive condo EC pipeline is limited and even if new sites are released, there is still a time lag of at least 17 months before the project can come online into the market, giving current incumbents a comfortable time buffer for sales.

2. There is still a long time before Additional Buyer Stamp Duties (ABSD) deadlines would be a concern for executive condo developers. Under current housing regulations, developers are required to develop and sell all units in a new residential project (EC projects included) within 5 years, else they will be liable to pay ABSD charges on their land costs with interest. Most of the EC projects launched in 2013 or earlier are mostly sold out, and the earliest ABSD dateline for projects launched in 2014 would be in Q2 2018. Furthermore, majority of EC projects launched in 2014 are at least 50 percent sold.

2014 EC projects sold out (%) status and ABSD datelines

3. Demand for ECs is still relatively healthy even though it has slowed considerably since 2013. In 2015, developers collectively launched 3,750 units and sold 2,550 units respectively. This translates to an average take up rate of about 68 percent. Average take up rate is calculated by dividing the number of units sold by the number of units launched in the whole market. The average take up rate in 2013 and 2014 was 107 percent and 63 percent respectively. A take up rate of more than 100 percent means that the number of sold units outnumbered that of launches, indicating sales from prior year launches. Though take up rates have fallen, developers are still moving units at a progressive rate.

Available unsold inventory also expected to decline by 2017

ECs are a product tailored to the sandwiched class, and this segment is expected to grow, in view of income growth and later marriages. Despite the slowdown in the market, demand for ECs remains resilient, it is only a matter of location and pricing. Executive condo prices are unlikely to fluctuate much, as developers remain on solid financial footing and do not face much pressure to sell. Even though unsold inventory are at elevated levels, inventory may dwindle by 2017, given the expected dearth of new launches in 2017. Prospective buyers may be tempted to wait but what’s left at the end of the day may not be the unit of choice.

Article and research by OrangeTee.

 

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