Is it better to buy an EC than a condo ?
What is an Executive Condominium (EC) ? Executive Condo is a hybrid of public and private apartment. It has both the attractive price of public housing and the superior comfort of private condominiums combined together.
EC are physically very similar to condos , it has all the facilities similar to a mass market condo. So is it better to buy an EC than a condo since it is so similar ?
EXECUTIVE condominiums (ECs) was first introduced to cater to the aspirations of the sandwiched” class. This group whose household incomes have exceeded the ceiling for public housing ($14,000), but are not yet able to stretch to afford a private condominium, are being served by this new EC segment.
The EC has become an increasing choice for many Singaporeans of this sandwich class. But for some people whose finances can allow a choice between an executive condominium and a private one, then the choice decision is much tougher.
WHO CAN BUY A EXECUTIVE CONDOMINIUM, WHAT IS THE QUALIFICATIONS ?
Not everyone can buy a EC, as it comes with many restrictions, this is necessary to ensure that only the sandwiched class is able to afford better housing.
To qualify for an executive condominium , you must meet these conditions
- You need to meet the HDB Eligibility Scheme such as Public Scheme, Fiancee Scheme, Orphans Scheme or Joint Singles scheme.
- Your total household income must not exceed $16,000
- You must be at least 21 years old and is a Singaporean citizen, or with at least one co-applicant being a Singapore citizen
- You do not owned any private property both locally or overseas, or you have not disposed of your private property within the last 30 months.
- You have only bought 1 of new HDB/DBSS/EC before, and received 1 CPF Housing Grant thus far
- You must meet the Minimum Occupation Period (MOP) of your current flat/EC unit.
- EC buyers are also subject to the Mortgage Servicing Ratio (MSR). MSR is implemented to prevent EC buyers from taking on loans that may put them in risky financial situations. The MSR cap for purchase of EC is set at 30 per cent of a borrower’s gross monthly income.
Executive condominiums is a hybrid that has the same physical attributes of a private condominium, there will be swimming pool, gym, outdoor area, tennis courts and security and other facilities.
Executive condominiums are state subsidized and were designed for home ownership instead of being investment instrument.
The buyer must stay in the unit for at least five years before it can be sold to Singaporeans or PR only. And after 10 years, the unit can be sold to anyone, just like any other private condominium. This minimum occupation period is implemented to prevent any property speculation or selling quickly to reap profits.
Benefits of owning a EC , and why it is better to own a EC
- Executive condominium are designed and built by private developers , just like private condominium. It is designed with quality facilities and security, giving all residents a luxurious and quality lifestyle.
- EC are built on GLS government land sales specially reserved for EC. This is sold to private developers at a lower price, which translates into cheaper selling price to the EC buyer.
- For all first-timer applicants, you are eligible to receive housing grants of up to $30,000.
- Executive Condo unit can be resold as private condo, after 5 years MOP, to Singaporean and PR and after 10 years it can be sold to anyone.
- EC will generally get a higher capital appreciation in future, because they are sold like private properties although they are bought as subsidized units with grants. And a larger pool of potential buyers to tap on after the privatization of the EC.
- Executive Condo also can be rented out like any other private condo. It has facilities like a condo , and it can give relatively good rental yield.
What is a Private Property
A private property can be landed or non landed condominium. It can be either brand new launch condo or resale condo. A condominium is a form of private housing which is co-owned by many strata owners. A condo has many common facilities such as swimming pool, tennis courts, gym, spa, park, and outdoor area commonly shared by all strata owners.
Main difference of private condominium vs executive condo are :
- Private property purchase do not enjoy any form of housing grants
- Private property are usually more expensive than EC or HDB
- Private property projects are only paid with progressive payment plans
- Private property can be bought solely for investment with no need for MOP or owner occupation.
- Private property has no restrictions on foreign ownership , all can buy private property.
- Home financing is regulated by TDSR, all mortgage finance must apply TDSR 60%
A condominium purchase will require a significant cash outlay from Buyer.
- 5 per cent for the option to purchase
- 15 per cent in cash or CPF when you exercise your sale and purchase agreement
- 5 percent for progressive payment, if your maximum loan is 75 per cent.
- 4 percent Buyer stamp duty
- Lawyer legal fees.
As the cash component is quite high, only those who are financially stable will consider private property purchase. Others who are tight cashflow may consider EC instead.
One major factor attracting many buyers to EC is the price. EC are price relatively cheaper than private condo because of the many criteria imposed by HDB on EC purchases. Price could be as much as 20% lower. And to add to this, EC Buyers can get a grant from HDB, if they are first time applicants to EC, this makes buying EC more affordable.
ECs can be a better investment choice compared to private condominiums, as they are usually sold for around the same price as private apartments in the resale market even though EC are purchase with grants (subsidized housing).
EC are treated as HDB property for 10 years. During this period, it is subjected to the same restrictions eg. Minimum occupancy period of five years, and restrictions on who can buy EC.
Because of cheaper land cost and construction cost, Executive Condo or EC have been priced lower than private properties. But recently, the narrowing gap between prices of the new ECs and OCR mass market condos is making this price difference less attractive.
The latest new EC launch, Piermont Grand and OLA, has seen prices come quite close to that of some new projects in the OCR during the first half of last year. New projects such as Riverfront Residences Sengkang, Parc Botannia Sengkang, and Treasure Tampines have all seen psf price at around $1250 to $1300. This narrowing price gap between new EC projects and OCR condos, has affected many HDB owners who are looking to upgrade.
ECs has become a rare commodity, as the supply of EC have being reduced in recent years. And because of limited land availability, the prices also have been driven up.
Recently, the potential supply of ECs is not able to meet the demand of buyers, because there were only four new EC projects in the pipeline.
- In 2019, there was only Piermont Grand, 820 units (Sumang Walk)
- In 2020, there were 3 EC . Parc Canberra, 450 units (Canberra Link), OLA, 550 units (Sengkang), Parc Central, 695 units (Tampines Ave 10)
This dwindling supply of EC has driven up prices to historical highs.
The government’s take on releasing more land for EC construction is a major factor that is affecting prices of new ECs. As you can see from the charts , new ECs are quite limited in supply.
While New housing measures, such as Enhance CPF housing grants are expected to make public housing more affordable and accessible for Singaporeans. The affluent buyers with significant cash savings will buy private condominium as the market has stabilised and it does not have MOP restrictions.
Conclusion :
While all upcoming EC developments are expected to be priced higher, they are still excellent value, because of their location and potential for growth.
Piermont Grand at Sumang Walk and OLA at Anchorvale Crescent sites will both benefit from the Punggol Digital District, a government initiative to transform the business and urban landscape of Singapore. This is a big initiative involving Digital businesses, top academia and the high-tech lifestyle, it is a key growth cluster in the North East Region, expected to create 28,000 new jobs.
Parc Canberra, The Canberra Link development is near Canberra MRT station and Woodlands Regional Centre. Parc Central, the EC at Tampines Avenue 10 will benefit from the upcoming Changi Terminal 5 development as well as the established Tampines Regional Centre.
ECs are still good value buys and a good option for the sandwich class and HDB upgraders.
From a pure investment angle, the private condo proved to be the better buy, because the EC regulations forbid the renting out of entire unit in the first 5 years MOP, and hence you cannot offset monthly mortgage payments with rental income. But if rental restrictions are change, then EC may outperform private condo.
Although the gap is narrowing, there is still a significant price gap between EC and private condo. And EC still provide an affordable option for HDB upgraders who want a higher standard of lifestyle. As EC is for own occupation, achieving a good resale capital appreciation after privatization is good for investment.
For more information , do leave me comments or make a e-appointment to discuss this in greater detail. Thank you
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Article by Rick Fok
Rick Fok is a realtor with OrangeTee & Tie Pte Ltd. He has been in this real estate business for 9 years. He is very focus in helping his clients rent properties and he does help many customers to buy new projects according to their needs. His interest include sports such as running and soccer besides just real estate work. He loves to connect with people to discuss properties related issues and gets enormous satisfaction in helping them fulfill their needs. If you have any queries on this topic or other , please do give Rick a call and we can discuss this over a cup of coffee.
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