Case For ECs post-cooling measures

December 25, 2021
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If you have been searching for a roof over your heads, or have difficulties coping with the latest changes to the various property stamp duty increases announced on the evening of December 15, 2021, you might be wondering if you and your other special one could ever own a property that can be truly called your dream home.

Yes! With the high cost of living we are facing, plus the latest increases to the various property stamp duties that can be easily worth about 15 percentage points more, you and your partner could be worried that it might be a bit overwhelming to fork out so much capital for the tax authorities, given the limited income levels earned from your day jobs, and the looming mortgage interest rate hikes.

So, do you postpone the next HDB resale flat purchase or condominium purchase, or is the executive condominium (EC) market something to worth considering as an alternative?

What is an EC

An EC is basically a “sandwich” class type of housing development where it is offered to eligible households who earn around S$16,000 per month or less, but the applicant must stay in his/her EC unit until at least the 5-year minimum occupation period (MOP) before one is allowed to sell them to a Singapore Permanent Resident (SPR) household.

However, if a household is still able to manage his/her mortgage payments till the 10th year, the EC will be converted to a private condominium just like any other condominiums out there, and Singaporeans, SPRs and foreigners are eligible to purchase.

How will EC prices fare post-cooling measures

While there has been much focus on the impacts of the latest property cooling measures on private home prices, there appears to be less focus on whether the new cooling measures on ECs.

Before we go on, let us recall what are the latest changes to the property cooling measures. Here is a chart that could be a good summary for your reference.

Source: Ministry of National Development (MND)

As you can see that while the Additional Buyer’s Stamp Duties (ABSD) are relatively less of a headache for first-time home buyers, the 5-15 percentage point increases to the ABSD rates for the second and third-timers could be seen as harsh, but necessary to lessen the increasing the pace of price momentum for private homes.

Moreover, new measures to tighten borrowing have also kicked in from December 16, 2021 onwards with the total debt servicing ratio (TDSR) ratio reduced by 5 basis points (bps) to 55 per cent from the initial 60 per cent threshold for all forms of interest bearing debt, including your credit card debts, renovation loans, business loans, and car loans, among others.

So, what’s in it for me to own an EC

Source EdgeProp.sg (2011 to YTD 2021 as of Dec 23, 2021)

As you can see from the above chart depicting the executive condominium (EC) prices, sale volumes on the left and right axes respectively, against the corresponding years from 2011 to year-to-date (YTD) as of December 23, 2021 showed a general uptrend in both sales and number of transactions for resale ECs since 2016, whereas for new EC sales, there were no discernible trends.

Readers might recall that in January 2013, the government has put in place a measure which requires the developers of ECs to wait 15 months before putting the units up for sale. With that, the time from the successful bid to the launch 15 months later could result in some mismatches among demand and supply of new ECs, thus the lack of a clear trend in the supply of new ECs is perhaps explained by the above mentioned chart.

While the average price growth has been around 52 per cent since 2011 as shown from the chart, the price per square feet (psf) has grown from a low of $640 psf in 2011 to about $1,100 psf in 2021, but has not surpassed above $1,500 psf yet so far.

How do condominium prices fare against ECs

Source: EdgeProp.sg

Indeed, if we compare the private condominium prices and transaction volumes, the pace of growth as shown by the gradient of the above-mentioned price chart showed a much steeper uptrend as compared to the earlier EC price chart.

Moreover, on a price per square feet (psf) basis, it has risen from a low of $1,300 psf in 2014, to over $1,500 psf in 2021, and number of resale condominium transactions have also picked up some pace with a total of 13,975 units.

Which one to choose? EC or private condominiums?

Executive CondominiumsPrivate Condominiums
ProsPros
ABSD ExemptSubject to new ABSD regime from December 16, 2021.
Cheaper, yet able to enjoy condominium livingSlightly pricier depending on location
Eligible to receive some EC grants depending on one’s circumstances, namely the Family Grant of a maximum of S$30,000 or a Half Housing Grant with a maximum of S$15,000. Please evaluate your eligibility requirements thoroughly (https://www.hdb.gov.sg/residential/buying-a-flat/new/schemes-and-grants/cpf-housing-grants-for-ecs)You are on your own. No available government grants
ConsCons
Subject to the 5-year MOP tenure, before being eligible to sell to Singapore Permanent Residents (SPRs), and by the 10-year, you’re free to sell to Singaporeans, PRs, and /or foreigners.You’re free to buy and/or sell, provided government regulations are adhered to.                                                                                                     
Your personal preferences, ie. Choice location, and upward capital appreciation if one is willing to wait patiently.You are looking to cash out as soon as long as value outweigh the costs.
As most ECs are not ideally located near amenities, you are willing to forgo some convenience in order to enjoy condominium living.You want convenience and added accessibility to amenities nearby.

Are you ready to start your condo journey

So, there you have it. We have basically provided some brief summaries of the latest property cooling measures, along with some of the pros and cons of purchasing an EC as compared to a private condominium under the new regime of property cooling measures.

Before you even begin, please be sure that you do some form financial planning, including determining what you want, affordability, investment time horizons, family and/or individual circumstances, etc. As property investing could be one of the biggest purchases in your lifetime, you might want to consider seeking some advice from a real estate professional, and/or your financial adviser before you even put down your name in that cheque.

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