Can new ECs actually lose money? 4 lessons learned from unprofitable transactions

Can new ECs actually lose money? 4 lessons learned from unprofitable transactions
PHOTO: Stackedhomes

While most property stories in Singapore are success stories, it's important to know the flip side as well.

So you may be surprised to know that even "sure-fire" investments like new Executive Condominiums can sometimes transact at a loss. But timing is everything (which you will see in a bit).

Here are some new ECs with losing transactions, and what you can learn over the 1,094 unprofitable transactions:

ECs that have seen losing transactions:

Condos Region District Sale Year Breakeven Gain Loss Grand Total
YEW MEI GREEN West Region 23 1998   296 141 437
SIMEI GREEN CONDOMINIUM East Region 18 1997   218 129 347
NORTHOAKS North Region 25 1998   378 128 506
WOODSVALE North Region 25 1998   351 109 460
THE FLORAVALE West Region 22 1999   319 94 413
THE RIVERVALE North East Region 19 1998   257 94 351
THE FLORIDA North East Region 19 1998 1 218 83 302
CHESTERVALE West Region 23 1997   140 63 203
WINDERMERE West Region 23 1997 1 137 59 197
SUMMERDALE West Region 22 1998   194 57 251
PINEVALE East Region 18 1997   118 51 169
EASTVALE East Region 18 1996   95 36 131
WESTMERE West Region 22 1996   61 36 97
THE EDEN AT TAMPINES East Region 18 2001   244 4 248
LILYDALE North Region 27 2001   243 3 246
ECOPOLITAN North East Region 19 2013   147 2 149
FORESTVILLE North Region 25 2013   155 1 156
THE DEW West Region 23 2001   114 1 115
THE TOPIARY North East Region 28 2013   261 1 262
WATERCOLOURS East Region 18 2012   165 1 166
WHITEWATER East Region 18 2002   259 1 260

Some notable details:

  • Losses seem related to timing rather than fundamental issues
  • The holding period is a factor 
  • Smaller units didn’t seem to record losses
  • Gains still outnumbered losses

1. Losses seem related to timing rather than fundamental issues

The bulk of losses stemmed from units purchased between 1996 to 1999.

We should note that in May 1996, the government introduced measures to combat property flipping — this came in the form of stamp duty on sellers. 

At the time, properties sold within one year of purchase had 100 per cent (!) of their gains taxed. Properties sold within two years or three years had two-thirds and one-third of the gains taxed respectively. 

(This policy is defunct today, it ended in 2005). 

Now this wouldn't have directly impacted resale ECs, as ECs already had a five-year Minimum Occupancy Period (MOP).

However, it did cause a knee-jerk reaction in the wider market, as cooling measures are accustomed to do; and it did curb enthusiasm for property purchases.

This was partly because, at the time, a trend was to buy a condo with the aim of quickly reselling it, rather than holding it for long periods; the whole purpose of the added stamp duty at the time was to disincentivise this practice. 

Here's an old archived report, if you want a snapshot of the situation at the time. While this can seem like ancient history (being almost three decades ago) it's still a reminder of how changes to government policy can impact even "safer" property choices like ECs. 

2. Holding period is a factor

Holding Period (Years) Breakeven Gain Loss Grand Total
0   4 3 7
1   32 5 37
2   50 12 62
3 1 77 16 94
4   97 15 112
5   296 46 342
6   728 81 809
7   1246 257 1503
8   2207 347 2554
9   1468 203 1671
10 1 936 73 1010
11 1 541 27 569
12   412 9 421
13   349   349
14   293   293
15   181   181
16   170   170
17   100   100
18   133   133
19   152   152
20   116   116
21   98   98
22   87   87
23   83   83
24   60   60
25   38   38
26   10   10

It's no surprise that longer holding periods correspond to lower chances of loss, but you could say that it is unexpected that just over 13 per cent of losses come from units sold after five years.

Conventional wisdom is that ECs are good resale as they're halfway to full privatisation (and subsequent buyers will be free of the MOP). 

And yet, it is from 13 years onward that we no longer see any losing transactions — quite sometime after the EC is already privatised. This may suggest that EC buyers should consider selling after privatisation, rather than in the fifth to 10th years if they are looking for a better payout (as obvious as it may sound).

Note that losses seen in holding periods of less than five years are "special case" scenarios, where the buyers are given special permission to sell early due to divorce, changes in financial circumstances, etc.

The losses for this batch are likely due to their related circumstances. 

3. Smaller units didn't seem to record losses

Size Breakeven Gain Loss
< 893 sqft   710  
>1496 sqft   810 103
1205 sqft to 1496 sqft 3 4547 860
893 sqft to 1205 sqft   3897 131

Of the 710 units that were 893 square feet or smaller, none of them recorded any losses. It was units between 1,205 square feet to 1,496 square feet that recorded the most losing transactions, by a significant margin. 

The reason is uncertain, but it may simply be due to their higher quantum at the time of purchase. 

4. Gains still outnumbered losses

At 9,964 gains to 1,094 losses, it's clear that losing money on an EC is still an outlier. Most buyers will see positive returns, even among those who sold in less-than-ideal markets. 

The key is to ensure that — just as a contingency — you're ready to hold even past full privatisation to sell later.

There's no guarantee that selling right after MOP will be profitable; and in the words of one realtor:

"If everyone wants to sell right after MOP, then it should actually be the worst time to sell, correct? That is when there will be the biggest number of competing listings in your EC!"

Realtors are expecting a likely pick-up in resale condo prices for 2023 to 2024

According to the realtors we spoke to, there's rising interest in resale condos, including resale ECs. This is due to a rise in new launch prices, with even fringe region properties crossing the $2,100 psf mark. 

On the flip side, resale flats are also at their highest price point in decades; and those who have just sold off a private property are now unable to purchase a resale flat for at least 15 months. 

As such, word on the ground is that buyers are instead considering buying — or rightsizing into — older condos instead. With their significantly lower price point, resale ECs have been drawing more attention again. 

It's especially helpful that there's no MOP on the subsequent batch of buyers for an EC. Investment-wise, this means the buyers can purchase a resale EC and start renting it out right away, to tap into the strong rental market. 

ALSO READ: 4-room Pinnacle@Duxton flat sets new sales record at $1.4m

This article was first published in Stackedhomes.

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