PRICE MOVEMENTS OF PRIVATISED EXECUTIVE CONDOMINIUMS AGAINST PRIVATE CONDOMINIUMS

Abstract

Unlike private housing, Executive Condominiums (EC) as quasi-public housing to meet the accommodation needs of the sandwiched middle class are subjected to resale restrictions. EC owners, after fulfilling the 5-year-owner-occupation period, are permitted to resell their properties in the open market but only to citizens and permanent residents during the 6th to the 10th year (Semi-Privatised Period 1). The said resale restriction is completely lifted from the 11th year onwards (Fully-Privatised Period 2), whereby ECs are also open to purchase by foreigners and corporate bodies.

This study investigates and compares the price movements of ECs during Period 1 with that in Period 2. It also compares the price movements of ECs during Period 2 with those of comparable Private Condominiums (PC).

The baseline hypothesis is that a relaxation of resale restriction in Period 2 will widen the pool of potential buyers and hence will trigger a higher rate of capital appreciation relative to that in Period 1. The other related issue is whether there will be a convergence in prices between ECs and comparable PCs in Period 2.

The hypotheses are investigated via the construction of hedonic price indices of 4 EC projects and 4 other comparable PC projects. The data for the study comprises 1,675 resale transactions from 4 EC projects and 1,422 resale transactions from 4 comparable PC projects spanning from Quarter 4 of 2005 to Quarter 4 of 2013.

An analysis of the 4 pairs of hedonic price indices yields the following findings:

• The average quarterly percentage change in EC prices for Period 2 (Fully-Privatised) is greater than that of Period 1 (Semi-Privatised). This result is in conformity with the prior expectations about the positive impact of de-regulation on prices.

• The average quarterly price ($ per sq m of floor area) of ECs in Period 2 did not converge or surpass that of the PCs.

• The quarterly percentage changes in EC prices in both Period 1 and Period 2 exceed that of the corresponding ones of the overall URA Price Index for Condominiums. This could account for the positive responses to new EC launches during the past 2 years and the perception that ECs also constitute a good investment in terms of potential capital appreciation.