EC Prices Unlikely to Come Off Much Despite Price Pressures – And This is Why

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SINGAPORE – The next few weeks will be a huge test for Executive Condominiums (ECs). At least two ECs will be launched in June or July 2015, the response of which will be closely monitored by industry watchers.

The two ECs are Sol Acres at Choa Chu Kang and The Brownstone at Yishun.

A third EC, The Vales at Sengkang, might also be launched during the same period.

These upcoming ECs are on the back of Westwood Residences at Jurong West, which launched to much fanfare but only sold 25% of total units on its first day (although that is arguably a respectable figure in this market).

Westwood Residences was widely touted to be the next LakeLife, the Jurong East EC that was sold out on day one, due to its proximity to the upcoming Jurong Lake District.

With quite a few ECs being launched at around the same time, it is inevitable that the demand could not catch up with the supply.

That being said, it is unlikely that EC prices will lower drastically despite the price pressures.  This is mainly because land for ECs is typically bought around 18 months prior to launch.

According to a Straits Times report, units at Westwood Residences have an average price of around $800 per sq ft (PSF).

With its estimated breakeven price at about $690 PSF, the developer is targeting a profit margin of around 16%, and that leaves little room to manoeuvre.

Using an implied developer sales margin of 16%, we generally see slightly lower prices for the upcoming three ECs, but don’t expect prices to be any lower due to compressed developer margins.

EC Breakeven and Expected Selling Prices

 
EC Land Price (S$ PSF) Estimated Breakeven Price (S$ PSF) Expected Average Selling Price (S$ PSF)
Westwood Residences 382 690 800
Sol Acres at Choa Chu Kang 357 660 770
The Brownstone at Yishun 350 650 760
The Vales at Sengkang 367 670 780

 

Furthermore, the property cooling measures introduced by the government have greatly restricted the pool of eligible EC buyers.

Hence, despite ECs being offered at a considerable discount to private condominiums, it is unlikely that lowering prices any further would enhance the take up rate for ECs.

It is more likely that the government review some of the measures pertaining to EC eligibility to allow more Singaporeans to buy ECs.

Figures from Squarefoot

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