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Privatised Executive Condos (ECs) vs Private Condos – Which One Offers Higher Rental Yields?

Posted by adminnlsg on November 8, 2016
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simei-green-condo

 

Simei Green, a privatized condo completed in 1999, has been attracting high rental yields from completion up to the present. This performance seems to back up claims that privatized Executive Condos reward their owners with favorable appreciation on their capital outlay. Profits from resale are reportedly averaging from 50 to 70 percent, or even reaching 100 percent. That being said, an EC owner’s ROI will also depend on the holding period, with the assumption that the property was a direct purchase from the developer, and bought during the 1990s or early 2000s.

In addition to the possibility of high capital appreciation, investor owners look into investment yield as well. They want to determine if their property will be able to yield favorable returns if they were to rent it out.

 

Are rental yields higher with privatized ECs?

The short answer: Yes.

Looking into pricing and rental figures will bring the conclusion that privatized Executive Condos have higher yields with rented out compared to private homes in the same area, generally speaking. However, there are exceptions to this since some ECs can also have the same rental yields as the private residential condominiums in the same location. Note that the gross yield for private condos generally averages at 3.1 percent and rarely exceeds 3.6 percent.

 

Project name Estimated Gross rental yield as at H1 2016** (%)
 
Chestervale 3.40  
Eastvale 3.40  
La Casa 3.80  
Lilydale 3.70  
Northoaks 3.70  
Nuovo 3.40  
Park Green 3.70  
Pinevale 3.70  
Simei Green Condominium 3.90  
Summerdale 3.60  
The Dew 3.50  
The Eden at Tampines 3.80  
The Esparis 3.80  
The Floravale 3.90  
The Florida 3.90  
The Quintet 3.50  
The Rivervale 3.70  
Westmere 3.50  
Whitewater 3.60  
Windermere 3.60  
Woodsvale 3.80  
Yew Mei Green 3.80  
Bishan loft 3.20    

Source: URA Realis, URA’s compilation of lease commencements and R’ST Research estimates

 

As reflected in the above table, among all privatized Executive Condos developments, the ones with the lowest yields are Chestervale, Bishal Loft, and Nuovo. At the opposite end with the highest yields are Simei Green Condominium, The Floravale, and The Florida. These figures further indicate that the privatized Executive Condos with the lowest rental yields like Bishan Loft, are on the same level as the standard yields of private residential properties in the same location. Additionally, Bishan Loft’s high resale price also resulted in its low yield. This is because even if the rental demand and prices in the development can be high enough for the investor owners, the high resale price brings down the overall yield. It is interesting to note though that despite its high prices, Bishan Loft’s central location still draws in buyers for its units.

 

In comparison, Chestervale can’t be redeemed by its location in Bukit Panjang. Demand drivers such as industrial parks, business parks, or factories situated in the same area are few or non-existent for Chestervale, thus driving down rental prices. There was a slight improvement though for the development as its accessibility improved upon the completion of the Downtown Line in Dec 2015.

 

For Simei Green, its position in Singapore’s eastern part translated into high rental yields. Most renters consider the privatized Executive Condos located in the east as providing value for money due to the relatively affordable prices plus the accessibility to Changi Business Park and the airport. The same goes for Floravale and its location in Jurong West, which has experienced active redevelopment recently, as well as Westmere in Jurong East. All these housing complexes have good rental yield.

 

Reasons why ECs have better performance than regular condominiums

The reasons why privatized Executive Condos have better performance in terms of rental yields are varied.

At the median resale price of $680 to $750 psf as of the first half of 2016, a lot of privatized ECs post the lowest figures for private residential properties that are already completed. An exception of this is the Bishan Loft project with its $1,100 psf median resale price. Generally, the resale prices of privatized Executive Condos are at the low end of the spectrum because their launch price or original purchase price were also low, with some at the less than $500 psf mark at around ten years ago.

 

Generally, these older privatized ECs are located a bit further. Renters who choose to live in privatized ECs at the suburbs are cost-conscious in general, which is why privatized Executive Condos are more attractive to these tenants compared to private condominiums.

 

A shift in tenants’ property requirements have also been noticed recently. Most renters now prefer to rent no-frills properties at affordable rents. This came about mostly because of the reduced or zero housing allowances extended to foreign professionals, who will naturally be renters rather than property buyers. Thus, renters in suburban areas would veer towards privatized ECs as these properties are a match to their requirements and finances.

 

With the exception of Bishan Loft, the median gross rental of privatize Executive Condos hovers at around $2 psf monthly during 1H 2016. Old ECs have a rental range of $2 to $2.60 psf monthly, depending on several factors such as its location, positioning, and the general condition of the estate. ECs located in Jurong and the eastern side of Singapore are known to meet these criteria, while ECs in the north charge lower rents.

 

The size of old privatized ECs also work in their favour. These older properties are larger in general compared to Executive Condos and condos that were launch from 2010 onwards. In fact, some landlords were able to rent out rooms as co- or triple-sharing for very spacious rooms.

 

Why caution is still advised if one invests in ECs for their rental yield

 

The market for Executive Condos rentals behaves differently than the market for condos. For example, the tenant profile and living requirements of those renting ECs versus those who rent private condo units are very different. This difference translates then into different returns on investment or rental yield.

 

Buyers should think before investing in an old EC with the rental yields in mind as their motivation, without doing a comparison with new ECs (those launched starting from 2010). New Launch EC may be smaller in unit and bedroom sizes but they have more modern designs and impressive facilities. Old ECs may have larger units and bedrooms but how they’re built are mostly with practicality in mind and the facilities are average.

 

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