ECs have much higher holding costs.
If you are an impatient homebuyer, then snapping up an Executive Condominium (EC) for investment purposes might not be the smartest choice. A report by OrangeTee Research revealed that ECs significantly underperform condominiums when it comes to return on investment, at least for the first five years.
As a public-private housing hybrid, EC sales are restricted by a number of rules, including the Minimum Occupation Period (MOP) requirement. ECs cannot be rented out for the first five years after being bought, and can only be sold in the open market ten years after its first sale.
Assuming ECs are bought purely for investment—that is, the buyer has no intent of staying in the unit for the entirety of the holding period—ECs would prove to be an inferior investment compared to condominiums, the report revealed.
Although ECs are on average 20% cheaper than private condominiums and tend to appreciate in value over time, OrangeTee Research noted that these developments incur higher holding costs for the first five years due to the MOP requirement.
“The EC investment incurs higher net holding costs in the first 5 years as compared to the private condo, and overwhelms the superior EC capital appreciation. It seems that buying an EC and leaving it empty for the first 5 years would be an inferior investment compared to buying a private condo and renting it out.” said OrangeTee Research.
However, if an investor is willing to wait for 10 years—or the time at which an EC can be sold in the open market—then buying an EC unit might be better than investing in a condo.
“In the longer term, the EC would prove to be a better investment. This is mainly due to the lower initial purchase price and the inflow of cash due to rental income (year 6 to year 10) as restrictions are lifted,” OrangeTee Research said.
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