Not too long from its heyday, the tepid response received for both Executive Condominium (EC) land parcels sold in February this year is reflective of developers’ confidence in the market segment and signalled a possible downtrend in EC prices.
Located at Anchorvale Crescent (Sengkang) and Woodlands Avenue 12, the two EC sites received a total of three and seven bids respectively and were awarded to their highest bidder at about S$280 psf ppr, a price unheard of since 3Q11. Other sites in the vicinity mostly fetched above S$300 psf ppr (Figure 1).
Should market sentiments fail to improve, EC prices in Sengkang and Woodlands may possibly witness a price correction of 5%-8% from the past six months average of about S$790 psf to S$730-750 psf next year.
Judging from the median tender price of S$250 psf ppr for the two EC land parcels recently sold, the conservative launch price developers might be looking at based on future market condition may be around $700 psf.
In addition, eight EC projects are expected to be launched this year. Developers of these projects who have submitted their tender prices based on previous market conditions, could possibly compromise their profit margins to price their projects competitively.
Developers’ impassivity towards the two EC land tenders may be driven by the potential oversupply of EC units in a depressed market. Between 2010 and 2012, all but one of the 17 projects launched were fully sold. On the other hand, sales for new EC developments launched from 2013 paled in comparison with only 1 of the 10 projects launched was sold out.
By the end of 2014, the number of unsold units has more than doubled to 2,028 units from 974 in 2013, representing about 35% of the total EC units launched in the past 2 years.
In addition, the eight EC projects scheduled to be launched this year would add 4,950 units to the market. The languid sales performance may be attributed to suppressed demand as housing budget shrinks in tandem with the reduction or Mortgage Servicing Ratio (MSR) from 60% to 30% of borrower’s gross monthly income for EC transactions since 9th Dec 2013. Notably, the number of returned units soared to a record high in 2014 after the revision of EC policy.
Demands may also shrink with the removal of resale levy incentives for second-timer applicants on EC sites sold after 9th Dec 2013 as this may dampen HDB dwellers’ propensity to upgrade. With the reduction of cancellation fees to 5% from 20% kicking in on these new developments, more may be inclined to overturn their purchases thus having an agnostic effect on the overall sales performance over time.
Nonetheless, the clamping down of new EC developments or new sites to be sold may alleviate the issue of oversupply in the long run and help bolster the EC market till better times.
On a brighter note, the softening of this hybrid property market provides an attractive hunting ground for potential buyers, on top of the inherent discounts offered compared to private properties.
By The Edge Property | April 16, 2015 7:09 PM MYT