Around 5,000 executive condominium (EC) units may be launched this year from up to eight new projects, exacerbating the build-up of unsold inventory, revealed media reports quoting consultants.

They expect tepid take-up for these EC units, especially when property developers have limited room to adjust prices downwards for sites acquired at high prices.

Meanwhile, there are still 2,100 unsold units from 12 EC projects launched. Data from the Urban Redevelopment Authority (URA) shows that vacancy rate of completed and available ECs rose to 15.1 percent in Q1 2015 from 11.5 percent in the previous quarter.

Nicholas Mak, executive director of SLP International, said the EC market is like “a person drowning in the sea with two heavy millstones — the mortgage servicing ratio (MSR) restriction and falling resale HDB prices — around his neck”.

“The upgrade resale levy will be the third millstone that will seal its fate,” added Mak.

JLL national research director Ong Teck Hui noted that the MSR has reduced the affordability of ECs and also restricted the pool of eligible buyers, resulting in lower demand and take-up rates in EC projects.

With the total debt servicing ratio (TDSR) capping outstanding liabilities of borrowers at 60 percent of gross monthly income, the 30 percent MSR for EC units purchased directly from developers has become redundant, explained consultants. The MSR has even led to a peculiar situation in which buyers can get a higher loan quantum for a private condominium than for an EC, making the latter less “affordable”.

Moreover, EC projects are subject to a 15-month waiting period from the date of site acquisition to their actual launch. Prior to this, an EC project can be launched as early as six months from the date of acquisition of the site.

Consultants also noted that market conditions can drastically change during the waiting period. And once the building plans are finalised, it is very hard for developers to respond to these changes, said ERA Realty key executive officer Eugene Lim.

“Furthermore, during the 15-month waiting period, a buyer might have an increase in salary that could disqualify him from buying an EC unit as the buyer’s average gross monthly household income must not exceed $12,000,” stated Mak.

As such, Lim reckons it may be good to align the loan rules for ECs with that of private properties.

On the other hand, Ong feels it may be timely to review the 15-month waiting period, should the bids for EC sites continue to moderate.

Image: Artist’s impression of the Amore EC which was launched in January.

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