TODAY ONLINE : New age executive condominiums

New age executive condominiums

05:55 AM Mar 20, 2010

by Colin Tan

The success of the The Pinnacle@Duxton has heralded in a new age for public housing.

Before this, no one in the real estate industry could imagine HDB residents/applicants paying "private housing" prices for public housing flats.

Those paying between $500,000 and $600,000 for their units would have an array of choices of older and bigger private housing apartments with condo facilities but in less central locations.

It shows that liquidity - albeit at a much reduced scale - is not just with the higher income groups.

And that higher prices is less of a problem so long as developers gave "potential buyers" an iconic or a special development which is perceived as giving value for money.

Hence, it was with some new-found liberation that bidders competed for three recent tenders for executive condominium (EC) sites over a span of weeks.

The first at Sengkang went for $315 per sq ft per plot ratio.

The second at Yishun went for $281 per sq ft while the highest bid for the third site at Tampines was $421 per sq ft.

At these land prices, new benchmark prices will certainly be sought by the developers to recover their land costs.

It helps that the highest bids were put in by contractor developers - which means they have control over construction costs, which partly explains the aggressive bids.

With the foreign worker levy going up and the slew of successful fully sold private sector projects slated for construction, cost of materials and labour are more likely to go up than down, even with the freeing up of more resources with the completion of the two IRs.

New private housing sales last year almost matched the record set in 2007.

And the HDB has said it will be pushing out 12,000 built-to-order units - or more if demand warrants it - this year.

Another construction bottleneck may be just around the corner.

For the successful bidders, they need to come up with something special to convince potential buyers.

In the past, a perceptible quality gap was evident with past EC projects.

This should come as no surprise as EC buyers have smaller budgets and developers had to compromise on quality to keep within the budgets of buyers.

However, with increasing age, the quality gap should matter less.

More problematic is the track record of ECs. After booking their units, it will take about eight years - three years of construction period plus five years of minimum occupation period - before the owners can sell them.

Unfortunately, the eight years for the current lot of ECs coincided with downturns and lower housing prices at the end of the eight-year period.

The minimum occupation period also means that the re-selling of other five-year-old condos will come in the sixth year for ECs. Given the stiff competition, it means even lower resale prices for ECs.

Notwithstanding the poor track record, the demand for ECs will be there, if only because private housing prices are even higher.

For would-be buyers, affordability should be interpreted as the ability to pay fully for the project over the entire loan period and not just for the initial years.

When doing your calculations, factor in normal interest rates, not the artificially low rates for the first two-three years banks offer to secure your business. ¢

The writer is the director, head research and consultancy at Chesterton Suntec International.

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