Over the weekend, you might have heard about a $2.05 million Executive Condominium being sold in a scant 2 hours after booking began at 10am.  This has certainly created quite a buzz.  Some questioned the high price, while others were shocked with the size and overt luxury afforded in the public housing sphere, all subsidised by the government to boot!  But I’m not going to talk about that here. I want to say that $2.05 million for a 4,349 sq. ft. penthouse in Singapore is cheap!  Before you write me off as one of the privileged few, however, please hear me out.  My judgement came not because of my ability, or rather lack thereof, to buy it, but purely by crunching the numbers.

Since exiting  the scene sometime in 2009, I have held out on buying a property as I find the prices today unsustainable. Many of you will probably debate me on the intelligence of that. Property prices only go up… right! That will be another topic I think, for another day. Today I want to talk about how I found myself along with my dad, wife and children at the show-flat, considering one of those penthouses. Why?

Simply because it is probably the one of the best if not the best valued property today in Singapore. Assuming a sale price of $2.05m, it works out to be $470 psf. Even based on a fairer per-square-foot valuation by discounting 50% of the private roof terrace, it will only be $578 psf. Factor in that it’s brand new, and its luxurious scope, it becomes a steal. I think a fairer price would be between $2.5m to $2.7m.

Indicative Selling Price for The Tampines Trilliant

3 bedrooms

872 sqft – 1,378 sqft

$682,000 – $743,000

3 bedrooms + utility

1,001 sqft – 1,378 sqft

$778,000 – $925,000

4 bedrooms

1,302 sqft – 1,593 sqft

$971,000 – $1,052,000

Penthouse

1,841 sqft – 2,465 sqft

$1,112,000 – $1,389,000

Source: http://tampinestrilliant.org/?p=104

So where am I going with this? Well, if it is good value for the buyer, especially value of that magnitude, I guess the developer must be on the short end of the stick.  Couldn’t they have offered the penthouse for more? Yes and no. Based on the speed the penthouses sold out, a clear yes would be indicated. But without the benefit of hindsight, and taking into account the income ceiling of $12,000, any prudent developer would not have priced it much higher. Prudent developer, I say. Or maybe not! Why would a prudent developer build outsized EC units, only to sell them at such heavily discounted psf. rates? I would wager that subdividing the larger units – those exceeding 2,500 sq. ft. – into two separate units will bag them more profit.  I estimate at least 20% more.

Basically, the developer was crimped on the pricing due to the income ceiling, which affects the loan servicing ratio. Barring the cash rich, the loans cannot be approved and the developer probably did not expect that many would be able to stump up upwards of $800,000 for down-payment. Hence buyer 1, developer zero.

Next, for our government, which sold the land at subsidised rates (through HDB), the backlash will be rather substantial. And here is why. Based on the calculated pricing information earlier, it seems that the resulting subsidy for these more-than-3,500 sq. ft. luxury penthouses is in the region of $500,000, deliberate or otherwise, which will be significantly more that the smaller, and cheaper units, even in percentage terms. This is certainly something that will not go down well with Singaporeans. It is going to be rather hard just to justify subsidising the rich, much less subsidising them more than the average buyers! Buyer 1 and our government zero.

Speaking of HDB, it does seem that they have again not kept the eye on the ball, judging by how they have bestowed upon our government a great big stinker. Essentially, the rules set up by HDB for ECs seem too lax, and their reliance on the sensibility of property developers appears misplaced. Making the government look silly here is definitely a loss for HDB, but I’m not too sure who the winners here will be. Maybe the naysayers, opposition politicians and dissidents?

How about Singaporeans? Well, we have just collectively subsidised a millionaire buyer and a few more of his neighbors by a substantial amount. With many Singaporeans suffering the effects of inflation, stagnating salaries and a whole list of other issues, I think it is safe to say that: buyer 1, Singaporeans zero.

I did say no winners, yet almost throughout the argument above, the buyer seems to be winning big here. However, the buyers are only able to take possession sometime in 2016, more than 3 years from now. That is still plenty of time and anything can happen between now and then. This long gestation period, the uncertainty it brings and whether we meet the EC requirements are exactly the reason why I did not rush on scene or queue overnight and attempt to be first in line.

I would hazard a guess that by 2016, we will experience a market correction of around 20% to 30%, and the valuation at that time will be probably be slightly lower than $2.05m, or even less. Then, there is also the 5 year lock-in period before any sale – and thus profit – can be realised. Hence, I am not too sure if the buyer will really come out on top in the long run. That alone will probably disqualify the buyer as a clear winner here. The jury is still out on this; let us check back in 3 and 8 years’ time.

So in conclusion,

  • Developer – zero
  • Government - zero
  • HDB  - zero
  • Singaporean - zero
  • Buyers – unknown, but probably zero

 

Do you agree?

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  4 Responses to “$2.05M EC Penthouse – A Case of No Winners?”

  1.  

    Why a penthouse heavy subsidiarity can only be sold to rich in an EC. I hope HDB will look into this matter where the rich is benefit from it. The ceiling of $12000 POLICY do not work here. URA the planner is not aware the repercussion of the approval of benefit the rich with Government subsidy.

  2.  

    What happen to the confidence displayed at the onset of the post – that property price is always on the “up” ?

    Singapore being what it is and with this PAP Government fuelling the speculative element of the property prices – by demanding the highest possible price for URA land released for development – it will not be unrealistic to see property prices remaining robust going into the future.

    The only dampening effect on property prices will be a global economic meltdown on the same scale as that of the 2008 New York Financial Crisis, or the 1997 Asian Currency Crisis, or the 1987 economic shakedown that stretched across the globe.

    Then again, after each of these global trauma, the property prices continue to rise with a vengeance to supercede the previous levels before each crisis.

    The most obscene issue of this HDB EC pricing fiasco is that the shortsighted and lack of diligence of the Ministry of National Development and HDB that allowed a few prvileged Singaporean to profit such an atrocious value at the cost of other Singaporeans.

    This is yet another example of the present PAP Cabinet Ministers taking things for granted, believing in their own supreme infallible talent, and simply “going with the flow” – as said by ex-PAP Minister George Yeo.

  3.  

    Over the long haul, I strongly believe that SINGAPOREANS, zero, BUYER 1, gahMEN 2.

    This clearly ‘multiple-confirmed’ the DAFTNESS of most of our PUBLIC POLICIES that ultimately work against not just the COMMON SINGAPOREANS BUT SG as well.

    The gahMEN SCORES 2 because they win versus the buyer and SINKIES at large as they have nothing to lose!!!

    AGAIN, common LESSER MORTALS get SCREWED BIG TIME by the gahMEN/POLICY-MAKERS.

    COUNTRY too will lose BIG if the gahMEN continues to PLAY PLAY with policies like this and especially the FTs.

    The RICH here just got to thank our CARTOON CABINET for monkeying around to their great advantage.

    Sad days for COMMON SINKIES. In time, we will really be called SINKING-POOReans.

  4.  

    there are two ways to be affluent’ in the cenxott of rising property prices in Singapore.1) own two properties. when prices rise, you sell one, profit the gain. Of course, many will say that buying one is tough enough, buying two is even harder. That is why, the rich becomes richer. If you are rich enough to buy two or more properties, you are never really affected by rising property prices. I know of people whose gain in the second property pays for the cost of the first one.2) buy a flat in singapore, rent it to foreign talents’ in Singapore and work abroad. Find a country where real estate prices are cheaper and create a second home. When it is time to retire, sell the flat in singapore and retire abroad.If you are middle income and stay in Singapore, you face a few issues. In an ultra small market like singapore, your opportunities are limited. Make a small mistake and it is difficult to get back on your feet. Which is why you are always living in constant fear. Many will spend their entire lives paying for one property and end up with, well, not enough cash for retirement because everything is tied up to property. Only the lucky ones can get out of this vicious cycle. For those born in the late 70s or early 80s, chances are most of their parents already own a flat.Technically the day will come when the parents will, well..move on, and the gain from the sale of this flat/property can be distributed to the children.

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