Big incentive to build large EC units

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#1
The Straits Times
www.straitstimes.com
Published on Jan 05, 2013
NEWS analYSIS
Big incentive to build large EC units

They are the best way for developers to up the ante in competitive landscape

By esther teo Property Reporter

LARGE executive condominium (EC) units have been making headlines recently with their record high prices.

The move by developers to build these spacious, often lavishly appointed units has proved controversial, especially given the public policy objectives of increasingly popular ECs.

ECs - a public-private housing hybrid - come with government subsidies and are intended to help households with a monthly income ceiling of $12,000 move into private housing.

Why, some ask, should the Government be subsidising large, swanky homes?

But there are many incentives for EC developers to build these larger units, so long as they are permitted to do so.

And if you take a closer look at some of these apparently enormous EC units, the liveable indoor space can prove to be significantly smaller than it first appears to be. A few of these penthouses come with a large roof terrace - a concept that is hardly new in private housing.

This feature is becoming increasingly common in ECs as developers build bigger homes to differentiate their projects.

Uncovered roof terraces are not part of a project's allowable gross floor area, but buyers pay for them even though they cost developers relatively little to build.

Building large penthouses is thus the easiest and most efficient way for developers to up the ante in the competitive EC landscape.

Sometimes, it is simply a marketing tool, allowing them to package a project as luxurious and higher-end while having to fork out minimal extra cost.

Take for instance the more than 4,300 sq ft "presidential" penthouse suite in EC project CityLife @ Tampines, which has a roof terrace of about 1,600 sq ft. Its $2.05 million price tag works out to about $470 per sq ft (psf) - which seems like a discount - but rises to $744 psf if only liveable space is counted. This is in line with the project's average price of $770 psf that the developer charged.

But throwing in a roof terrace creates buzz and helps a developer differentiate a project in the jostle for middle-income buyers.

And this formula seems to have worked well.

About 30 per cent of sales hotline enquiries about CityLife, for instance, were about the presidential suite or the six skysuites, its marketing agent said earlier, even though they make up only about one per cent of the 514-unit project.

The 394-unit Heron Bay in Upper Serangoon - the first EC to introduce five-bedroom apartments - also saw healthy sales when it was launched in September last year. It was more than four times oversubscribed - one of the best responses to an EC project in a number of years.

The figures clearly show that large, fancy units get buyers interested in an EC project and into the showflat. Even if they do not buy the large unit, they might decide on another unit at the project.

Boutique developer EL Development's managing director Lim Yew Soon said there is no general rule on whether larger units are more profitable.

Many variables, such as the number of bathrooms - which have a high construction cost - or the size of roof terraces in the penthouses, come into play.

Law firm Rodyk & Davidson's real estate partner Norman Ho added that it is also genuine demand that is driving developers to build units with bigger sizes for Housing Board upgraders.

This is because large units allow more than one generation to be housed under one roof.

Buyers are prepared to pay a premium for space: The first HDB resale flat to be sold for $1 million recently was a 1,615 sq ft executive flat in Queenstown that was already 17 years old.

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

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

It is no surprise then that large EC units, marketed under the guise of dual-key units, skysuites or penthouses, are often the first to be snapped up.

And it is this strong demand for such homes and the success of EC projects with large and luxurious units that prompt other developers to do the same.

esthert@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Big EC problem is not only because they are cheap and Mr Market is "arbitraging" the rules, but also because each of this EC provide living space for AT LEAST FOUR families. That makes no sense for HDB policy
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#3
(05-01-2013, 11:44 PM)specuvestor Wrote: Big EC problem is not only because they are cheap and Mr Market is "arbitraging" the rules, but also because each of this EC provide living space for AT LEAST FOUR families. That makes no sense for HDB policy

I agree, it's frankly quite ridiculous.

The Government should quickly move to clamp down on such practices, but I feel that in the first place, getting private developers to build and develop public housing is already a conflict of interest. The developers will want their profits and margins, while the social aspect is to keep it "affordable". It's a contradiction.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#4
Ya lor, really no meaning
We just need affordable housing, more cheap supply to bring down the prices, not this kinda bullxxxx
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