Is there an optimal holding period to maximise capital gains? We look at resale EC transactions in June 2023

When it comes to property investment and asset progression, most of the time, people would think of condos.

Less talked about are executive condominiums, which are becoming more popular these days due to the lower quantum (especially new launch ECs) relative to condos.

But ECs shouldn't be overlooked since they have a high potential for capital gains. A report by OrangeTee & Tie released last year found that nearly all ECs resold on the secondary market between 2007 and end-August 2022 made an average profit of S$300,000.

In particular, new ECs are more likely to experience higher price increases in future since they have lower starting prices (due to subsidies). A recent report by Huttons found that buying a new EC would translate to a better capital gain than buying a resale EC.

With that, we're examining the resale EC market these days by looking at the EC transactions on the secondary market in June 2023.

All ECs resold in June 2023 made a capital gain; average gain is S$494,000.

According to URA data captured as of 22 July 2023, 112 ECs were resold in June 2023. All the transactions had made capital gains, averaging around S$494,000.

The highest gain for the month was S$830,000 from the sale of a 1,593 sqft unit at Skypark Residences. Bought in September 2016 for S$1,238,000, it was sold seven years later for S$2,068,000, translating to a capital gain of 67 per cent.

As the project TOP-ed in 2016, the unit was sold by the first owners, who had completed their five-year Minimum Occupation Period (MOP).

On top of that, we noticed a couple of interesting trends from last month's transactions.

Resale ECs with a higher capital gain by quantum in June 2023 had an average holding period of nine years

To find out the optimal holding period to maximise capital gain by quantum for ECs, we looked at the transactions with a capital gain above S$494,000 and found 51 such transactions.

These 51 transactions have an average holding period of around nine years.

Here's a breakdown of the holding period of these transactions:

More specifically, we noticed that two-thirds of these transactions had a holding period between five and nine years.

On top of that, they TOP-ed between 2016 and 2018, meaning the owners had completed their MOP in the last two years. This signals that the units were all bought during the launch.

This includes the EC sale from Skypark Residences (TOP in 2016), which scored the highest capital gain (by quantum) of S$830,000 in the month. The owners had sold it after a holding period of seven years.

It also aligns with the finding in the recent Huttons report, that buying a new launch EC will lead to a higher capital gain than a resale EC.

Short holding period = high annualised gain?

One transaction that stood out to us was the sale of an 872 sq ft unit at The Canopy. It first caught our eye because it made the lowest capital gain in the month at S$172,000.

The unit was sold for S$930,000 in June 2023, after the owners bought it for S$758,000, translating to around 22.7 per cent capital gain.

On closer inspection, we noticed that the owners bought the unit in January 2021, which means it only had a holding period of two years. This translated to a 10.77 per cent capital gain when annualised. In fact, it's the third-highest annualised gain in the month!

Of course, when calculating actual gains, we still have to account for other costs of selling a house, such as stamp duty, legal fees and agent's commissions.

With this transaction, we know that with it being sold around two years later, the owners would have to pay four per cent Seller's Stamp Duty (SSD), which works out to S$37,200. So the capital gain after SSD would be S$134,800 (17.78 per cent).

When annualised, the capital gain would be 8.53 per cent. It's still pretty decent for the sellers, as they were able to earn high returns with their investment.

This transaction isn't the only one with such a short holding period and high annualised gain in June 2023.

The sale of a 1,206 sqft unit at Whitewater recorded the highest annualised gain in June 2023 at 12.45 per cent when it was sold for S$1,230,000. The owners bought the unit for S$865,000 in Feb 2020. Since the holding period has crossed the three-year mark, they didn't need to pay the SSD.

Another transaction with a similar annualised gain was the sale of a 1,054 sqft unit at Blossom Residences when it changed hands for S$1,278,000. The owners sold it slightly over three years after they bought it for S$900,000. Likewise, they didn't have to pay the SSD, which would have eaten into their capital gain. It became the second-highest annualised gain in the month at 12.40 per cent.

Coincidentally, among the resale EC transactions last month, these three transactions (which have the highest annualised gain in the month) had the shortest holding periods.

Resale ECs with higher annualised gain had an average holding period of 6 years

To determine if there's a correlation between a short holding period and a high annualised gain for ECs, we filtered the data to get the transactions with an annualised gain higher than the average annualised gain for the month (6.83 per cent).

We found 60 such transactions, with an average holding period of around six years.

Here's a breakdown of the holding period of these transactions:

A holding period of six to seven years seems to be the sweet spot to earn a higher annualised gain. Among these 60 transactions, 27 had a holding period of six years, while 25 had a holding period of seven years.

Likewise, 90 per cent of these transactions had TOP-ed between 2016 and 2018, indicating they had completed their MOP in the last two years. This also means the sellers were the first owners.

At the same time, the three transactions with the highest annualised gains in the month were only held for two to three years. But it's only possible to sell an EC quickly if it has finished its five-year MOP.

This meant that the sellers had bought these units from the secondary market.

For instance, The Canopy and Blossom Residences TOP-ed in 2014, so they had MOP-ed in 2019 and will be privatised soon. Given that Whitewater TOP-ed in 2005, it has already been privatised.

Higher annualised capital gain may be due to the hot property market in the last three years

Nevertheless, when it comes to maximising capital gains, we shouldn't just focus on the general trend. We would also need to look at the price trend of the respective projects.

In the case of these three transactions, a possible factor of the higher annualised gain is the robust residential property market over the last three years.

As with the other residential property types (such as HDB resale flats and condos), the price increase of resale ECs over the last three years had been pretty steep at 40.34 per cent.

It's definitely good news for these sellers, as they exited the market when prices were high and were able to make such a high annualised gain.

ALSO READ: August 2023 HDB BTO flats review: Tengah

This article was first published in 99.co.