Comparing investment opportunities
Dec 28, 2012
It is not uncommon for home buyers to experience confusion when trying to decide between Executive Condominiums (ECs) and private condominiums. Afterall, the two property types are very similar.
For those in the know, the purchase of a piece of residential property means more than just buying a home; consideration must also be given to the investment opportunities provided by the property in the long run.
When it comes to the returns on investment, Executive Condominiums (ECs) can command prices that rival that of the mass market condominiums in the resale market. In fact, the resale price gap between ECs and condominiums has narrowed from 20% to 25%, to 17.2%.
Additionally, the prices of ECs have shown a positive trend, rising steadily by 10% to 20% in the past 2 years alone. This is a sure sign of a robust resale market, with potential profits to be reaped.
Although as a cursory observation, this may all point to ECs as the better property type for investment, Getty Goh, director of Ascendant Assets, a real estate research and investment consultancy, thinks that condos have their plus points, too.
“One of the highest profit made for a condominium transaction was $12,700,000 at Ardmore Park whereas one of the highest profit made for an EC unit was S$980,730 at Bishan Loft. Both units were sold in 2010. In view of this, the upside potential between condominiums and ECs can be quite different,” he pointed out.
Upside potential is the amount by which industry insiders expect a property’s price to increase. Although ECs units have been known to see a huge appreciation in price after the Minimum Occupation Period (MOP) of 5 years, condos, in general, still have higher upside potential.
The location, which is often a key factor in determining selling price, must also be taken into consideration. “There are condominiums all across Singapore (including prime locations like District 9 and 10). In comparison, ECs are only located in the outskirts (suburbs) of Singapore,” Goh explained.
Another difference between condos and ECs is the leasehold period. Many condo developments are freehold while all ECs have a 99-year leasehold. Decades down the road, these ECs will face the possibility of collective sales. Depending on the market situation and compensation, this could be a boon or a bane.
According to Getty, this could be more of a boon as “enblocs are typically deemed as a positive thing due to the financial windfall many owners will potentially stand to gain.”
However, should an en bloc not come to pass, investors may find themselves in a sticky situation. Older properties near the end of their leasehold periods often have difficulties attracting buyers. This is where the freehold lease of condos becomes a huge advantage – they do much better in the resale market.
Another reason that makes ECs poor investment options are the restrictions placed on them. No money can be made from ECs during the first 5 years due to the MOP. These units can be sold after the MOP is up, but even then, it’s only to Singapore citizens or permanent residents. Courting foreign buyers will have to wait till the property is a decade old, when all restrictions are lifted and the unit becomes privatised. In comparison, condos face no such restrictions.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)
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