How do I decide between an Executive Condominium (EC) and a new private condominium?
If you are reading this, you probably already know that only Singaporeans are eligible to purchase ECs in Singapore’s public housing landscape. A Permanent Resident (PR) is eligible to apply for an EC only as a joint applicant with a Singapore citizen. ECs are essentially a hybrid between public housing and private housing, as ECs have the usual facilities that a private condominium development provides, except that they are subject to HDB’s regulations, since they are considered subsidised housing. Hence, the prices of ECs are also about 10-20% lower compared to private new launches in a similar locale. After 5 years MOP, the EC can be sold to Singaporeans and PRs; after 10 years, it can be sold to anyone just like a private condominium. There could be a good margin for capital appreciation after MOP and after 10 years.
However, here are other factors to consider when weighing the pros and cons of buying an EC versus a private new launch.
1) Significant cash outlay but lower mortgage repayments when buying an EC
The Mortgage Servicing Ratio (MSR) is the portion of a borrower’s gross monthly income that goes towards repaying all property loans, and is capped at 30% of a borrower’s gross monthly income. Given that the MSR is used to calculate the borrower’s eligible loan amount for an EC purchase (which has to be taken from a bank), it significantly reduces a borrower’s eligible loan amount.
For example, a couple in their mid-forties with a maximum income of $16,000 a month (which is the income ceiling for buying an EC), may only be eligible to borrow up to $827,000 for their EC purchase, provided they have no other loans. If they buy a 1,206 -sqft Parc Greenwich 4-bedder, at $1,239 psf, the purchase price is $1,494,000. The 75% maximum loan amounts to $1,120,500, which the couple would have been easily eligible for if the loan amount was based on Total Debt Servicing Ratio (TDSR), which is 60% of their gross monthly income (it is now 55% following the Dec 15 2021 cooling measures). Now, they have to make up for the shortfall of $293,500 which they couldn’t borrow for their EC purchase, likely in cash, if their CPF funds aren’t enough. The cash cum CPF portion, inclusive of the Buyer’s Stamp Duty (BSD) of $39,420, would amount to a whopping $706,420!
As you can see, not many middle-income Singaporeans would be able to fork out so much cash upfront. Only those who are cash-rich can afford to buy an EC, unless they want to compromise on the size of the EC, and buy a much smaller unit. The advantage is that the couple would be saddled with a smaller loan, and hence, monthly mortgage repayments are lower.
In contrast, given that the same couple is eligible for a maximum bank loan of 75% of the purchase price when purchasing a new launch condo, they would not have to fork out as much in cash. If they are using CPF to pay for 20% of the purchase, the cash portion would the the 5% downpayment, and the BSD (if their CPF Ordinary Account funds are insufficient). However, since the price quantum for a private condominium is higher, so together with a larger loan amount, the monthly mortgage repayments would also be noticeably higher. Thus, the EC may turn out to be a more accessible upgrade (provided you are cash-rich!) given its relative affordability in terms of price quantum.
2) Location, location, location
I’m sure you would have noticed that the locations of current and upcoming ECs tend to be quite far-flung and less central, such as in Punggol, Sengkang, Sembawang, Tampines and Tengah. Unless you are working near these areas, the daily commute to and fro work may be quite long. In a rather undeveloped area like Tengah, you would also have to wait for quite a few years before the area undergoes transformation, and full amenities are up and running. In the meantime, you would have to put up with the practical inconveniences of the lack of adequate amenities around the estate, and less frequent public transportation services.
Such inconveniences may not be a concern with private new launches. There are plenty of choices with regard to location as there are more private developments compared to EC developments.
3) HDB rules apply for an EC purchase
Such rules include the 5-year Minimum Occupation Period (MOP) and a Resale Levy of $55,000 when you sell your EC and then buy a HDB subsidised flat like a BTO, since you enjoyed a housing subsidy when you first bought the EC. The Resale Levy doesn’t apply, however, when you buy a HDB resale or private residential property.
During the MOP, you are allowed to rent out rooms but not the entire unit. You also cannot own or have partial interest in a local or overseas property.
These rules don’t apply when you buy a new launch. You are free to sell the unit, and if you sell it within 3 years of your purchase, you pay the corresponding Seller’s Stamp Duty (SSD). You can rent out the entire unit immediately after you purchase the property, and you are also free to own other properties locally and abroad.
In short, there are fewer strings attached to your purchase of a private new launch compared to an EC.
So, it depends on what your priorities are as you consider buying either an EC or a private new launch. Would you be willing to bear with the inconvenience of staying in an outlying district, not quite central to the heart of Singapore, in order to upgrade to a more affordable EC, that would be fully privatised like a private condominium in 10 years’ time? Do you also have the liquidity available to make such a purchase? Or is convenience of location a topmost priority for you, given that most in the family have to make the daily commute to work and school? The prices of upcoming ECs are unlikely to be cheap as well, as observed from the recent land bids for EC plots. Tengah EC’s highest bid was at $603 psf ppr, which could translate to around $1,250 psf when Tengah EC is launched. But Tengah is not the the most pricey. The record-smashing bid for an EC plot currently goes to Tampines Street 62, at $659 psf ppr.
So, will ECs still be a housing option as sought after as it was in the past? I believe the demand will still be there as they are after all, still an upgrade from HDB flats, and a cheaper upgrade to new private condominiums. However, they may soon be priced out of reach of the middle class. Hence, the best time to buy a private property, as is often said, was in the past. The second best time, is now.
Are there any other topics you would like me to write about? Or do you have any questions?
