Wednesday 26 December 2012

ECs: Excessively cushy homes?

Should buyers of executive condominiums costing more than $1.5 million with luxurious facilities still receive government subsidies?
By Esther Teo, The Straits Times, 25 Dec 2012

EXECUTIVE condominiums (ECs) have been all the rage this year, hogging the headlines not only for robust sales but also fancy designs that rival private homes.

These public-private housing hybrids are pushing size and price boundaries, with large, luxurious units increasingly crossing the $1.5 million mark.

A 2,845 sq ft penthouse unit at Heron Bay in Upper Serangoon fetched an eye-popping $1.77 million in October.

Another 4,349 sq ft "presidential suite" at CityLife @ Tampines is expected to eclipse the $2 million mark when it is open for sale at the end of the month.

These large, pricey homes have raised eyebrows and led to a raging debate on whether buyers of such expensive ECs should be entitled to Housing Board (HDB) grants. These grants for first-time home buyers are tiered according to the buyer's household income, with some buyers eligible for up to $30,000.

But it is not only grants these EC buyers receive that are getting people up in arms.

Since there are restrictions on who can buy EC apartments, land for EC sites is tendered out by the Government for less money than they could otherwise fetch if the land was zoned for private residential development. In other words, there is an implied subsidy for land used to build EC units.

Buyers of larger EC units get a proportionately larger "subsidy", upsetting some Singaporeans' sense of justice.

To be sure, there are only a tiny number of such upscale units in EC developments. At the 514-unit CityLife, there is only one presidential suite and six skysuites.

But given the intent of the EC scheme, it's not surprising that the emergence of huge units costing over $1 million has drawn flak. Even National Development Minister Khaw Boon Wan has weighed in on the hot-button issue, reminding developers to keep to the "intent and spirit of the EC policy" in a recent blog post.

Sandwiched class

INTRODUCED in 1995, ECs were created to meet the aspirations of the so-called "sandwiched class" who might not qualify for public housing but find private property beyond their reach.

They combine elements of private and public housing. Like HDB flats, buyers of ECs must fulfil certain criteria: There is an income ceiling of $12,000 per household, up from $10,000 in August last year. Buyers have to stay in the units for five years before renting them out or selling them.

They can be sold to Singaporeans and permanent residents (PRs) after five years. After 10 years, they can also be sold to foreigners. This is unlike HDB flats, which cannot be sold to foreigners for their entire tenure.

These restrictions lead to new ECs being priced about 20 to 25 per cent lower than comparable 99-year leasehold private condominiums. The price gap narrows as an EC approaches its 10-year mark when it becomes fully privatised. Many buyers are attracted by the potential price gain.

Not surprisingly, ECs have proven popular in recent years in a bullish property market where suburban private home prices have risen sharply. Since 2010, 23 land sites for EC projects have been sold. Another 3,100 EC units are expected to be built on sites to be sold in the next six months.

Competing for buyers

WITH a fast-rising supply of EC units, it is no surprise that developers are competing for buyers with innovative layouts, luxurious finishes and larger units.

Large units of more than 2,000 sq ft are marketed as skysuites, penthouses or dual-key units. Some offer luxury features such as private pools.

Larger apartments which allow multiple generations to be housed under one roof are popular with buyers. Buyers are prepared to pay a premium for space: The first HDB resale flat to be sold for $1million recently is a 1,615 sq ft executive flat in Queenstown, which is already 17 years old.

The HDB used to meet the niche demand for large flats, through its executive apartments and maisonettes, which average 1,600 sq ft. But the HDB stopped building such flats in 1995, when ECs were launched.

As a result, there is a scarcity of big flats in the mass market. Most large units offered these days are ultra-luxe homes in the prime districts that easily sell for more than $3 million.

Savvy EC developers saw an opportunity to meet demand for affordable, larger apartments.

Heron Bay was the first EC project to include five-bedroom units in September. Managing partner of Evia Real Estate Management Vincent Ong predicted then that large units would see strong demand, as more families would value larger home spaces at a price tag "comparable to smaller three-bedroom units in some private condominiums". He was right.

While developers will say providing large units is a reasonable market decision to meet demand, critics say ECs are meant for the sandwiched class, and the sizes and prices of such units should be appropriate for middle-class households.

Homes costing more than $1.5 million are thus attracting a different class of buyers, who should not be allowed to enjoy housing grants or land subsidies, they say.

One factor fuelling demand for big units is that some of these have been designed as "dual-key units" which in effect offer separate living quarters. These can be easily rented out, as existing rules for ECs allow rooms to be sub-let.

The ability to generate rental income from a large unit make them more attractive to buyers.

Too big for comfort?

SHOULD there be rules forbidding people who can afford high-priced ECs from enjoying the housing grants of up to $30,000 given to first-time buyers?

But many EC buyers are young couples who meet the income ceiling and are thus eligible for the grant. Some buyers of mega-size units have parents who chip in with the purchase price so the extended family can live together. Young couples who favour such multi-generational living should be encouraged to do so, not penalised by depriving them of a subsidy their peers enjoy.

Should EC developers be slapped with restrictions on unit sizes or prices? Consider that Singapore's average resident household size was just 3.5 last year, according to the Department of Statistics. If a family with two children live with one set of grandparents, or six people in all, a reasonable unit size would be a four-bedroom unit of about 1,600 sq ft.

Should developers then be prevented from selling EC units that are 2,000, 3,000 or 4,000 sq ft in size?

After all, building more large units reduces the number of homes that can be built on a piece of land.

The CityLife site was estimated to yield 580 units when the land was sold. In the end, the developers built only 514 units. At Heron Bay, the site could have held 435 units, but the developer built 394.

PropNex chief executive Mohamed Ismail also pointed out that a 4,349 sq ft apartment could fit three typically-sized units comfortably. Benefiting one family and potentially depriving two others of a chance to have a EC home smacks of unfairness.

Of course, there are some who argue that there is nothing wrong with selling 4,000 sq ft penthouses if there is demand for them.

Some experts also point out that EC developers should be given free rein to size and price their units, as they compete for the land site, and bear the business risk of weak sales and unsold inventory if they misjudge market demand.

Since the Government does not shield them from market risk, the Government also should not set limits on the size or prices of the units they sell.

But such arguments ignore two things: One, that ECs are meant to be a form of public-private housing hybrid. EC prices are artificially depressed because of the restrictions on who can buy EC units. Two, the Singapore Government does not hesitate to intervene in the private property market when it sees fit.

The recent rules indirectly limiting the number of "shoebox" units of up to 500 sq ft that can be built on suburban sites is a case in point.

Where there is a public interest at stake, the Government will not hesitate to step in. Already, Minister Khaw has said he is watching the segment closely.

While EC developers operate like private developers in that they tender competitively for the land and are given a free hand to market and sell EC units, there is no gainsaying that EC buyers do enjoy explicit housing grants, and implicit land subsidies.

PropNex's Mr Ismail noted that while there is not an alarming number of units of more than 2,000 sq ft yet, "as long as it is seen as an unfair distribution of taxpayers' money to a certain segment, the Government might have to act".

One developer told The Straits Times privately that he felt compelled to offer larger units to compete with others. Such developers would not be averse to clearer guidelines on layout and sizes, so long as it does not curtail architects' or planners' creativity.

These could range from imposing a minimum number of units that must be built on an EC site or even setting a maximum size for an EC apartment, Mr Ismail suggested.

The ball is now in developers' court: to take stock of what ECs are meant for and observe some boundaries themselves. Or continue testing the market for larger and more luxurious units.

If they do the latter, guidelines might be needed at some point to provide more clarity on what makes for an innovative EC unit, and what makes for an excessive one.


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