Prices for executive condos are pushing the affordability limit. It’s time to refine your model.
The EC hybridizes public housing and private housing. ECs, which are built and sold privately by developers, sit on 99 year leasehold land.
The only buyers who can purchase ECs from a developer are couples consisting of Singapore citizens, or a Singapore citizen and a PR. Also eligible for ECs are singles who have attained the age of 35 and are Singapore citizens.
Even though new ECs can be cheaper than new condos in some cases, new ECs units are hardly accessible today.
A new EC of 1,000 square feet, which is roughly the size and layout of a four-room HDB flat, would cost S$1.46m, excluding any stamp duty and legal costs. For a 1,200 sq ft EC, the cost would be approximately S$1.75 Million. This is roughly equivalent to a HDB 5-room flat.
New EC units must be occupied by the buyer for a period of at least five years following completion of the project. During that time, they cannot sell or rent out their home in its entirety. After five-years, the EC units can be rented or sold to Singaporeans and PRs. After 10 year, the EC can be sold by anyone – even foreigners – just like a private condominium.
Local couples are also potential buyers of new ECs. They may not meet the S$14,000 monthly income ceiling for HDB Build To Order (BTO) flats, but they can still afford a S$16,000 monthly income ceiling for ECs. The CPF Housing Grant is not available to a local couple whose income monthly exceeds S$12,000.
It is possible that parents who help their adult children fund home purchases are fueling some of the liquidity needed to purchase new EC homes.
Stretched affordability
Affordability of new EC units may be stretched for young couples without parental assistance. For a couple who barely meet the income threshold to buy a brand new EC, a S$1.46million home would be 7.6x their monthly income of S$16,000, or S$192,000 a yearly.
The couple may struggle to come up with S$365,000 for the equity portion if the EC unit purchase is 75% funded by loan and the remaining 25% by equity.
The couple might also breach the mortgage servicing rate (MSR), which is applicable to all buyers of new EC houses. MSR is the amount of gross monthly income a borrower uses to pay off all loans, including that which they have applied for. The cap is set at 30% of the gross monthly income.
The monthly payment on a 30-year S$1.095,000,000 (75 percent of S$1.46,000,000) home loan, with an annual interest rate at 4 per cent, is S$5,228, nearly 33 percent of the couple’s S$16,000 in income. A 25-year loan has a monthly installment of S$5,780 (or over 36% of their income)
Home buyers in the EC are also subject to the maximum limit for total debt servicing, which is based on a borrower’s total monthly obligations.
Maybe the income limit for buyers of new EC houses – raised last in 2019 – could be increased to S$20,000 a month. For a couple who earn S$10,000 each per month, a S$1.46m new EC would cost 6.1x their combined annualised income of S$240,000.
Instalments of S$5,228 a month and S$5,780 a month are approximately 26 and 29 percent respectively of their monthly household earnings of S$20,000.
In 2023, approximately 15 per cent (excluding full-time servicemen) of all employed residents aged over 15 will earn S$10,000 gross per month from their work. This does not include employer CPF contributions.
Capsule unit size
The size of the homes built by developers could also be capped to help those who do not get parental support buy ECs.
Lumina grand has 51 five-bedroom apartments ranging in size from 1,496 sq ft to 1,711 sq ft.
A 1,500 square foot EC home that costs S$2,15,000,000 is equivalent to about 11,2 times an annualised income of S$16,000 per month, and 9 times an annualised income of S$20,000.
Possibly the maximum size for a new EC can be capped around 1,200 sq ft. It is roughly 9.1 times, and 7.3 time the monthly income of S$16,000 or S$20,000.
HDB BTO is an affordable housing market that helps many young Singaporeans become homeowners.
Singapore’s young struggle to fulfill their housing ambitions. Buying an executive condominium can be a cost-effective method for Singaporeans who want to own their own home. New ECs can be up to a third cheaper than comparable new condominiums.
There is a healthy appetite for new ECs. City Developments Ltd, C09 +1.18% the developer for the Lumina Grand EC at Bukit Batok reported that by 12 pm on the 28th of January, 269 or 53 percent of the 512 units of homes in the development had been sold after the official launch of the previous day. The average price was S$1,464 a square foot.
The developers, on the other hand, set prices for new ECs. The rising land costs paid by developers in competitive tenders can also affect prices. The winning bid in the Tengah EC tender that ended last week was S$701 per plot ratio.
Singaporeans in the early stages of their career may be able to benefit from purchasing a new EC.
Release more EC locations, especially in prime areas. Likewise, we can expand the pool for new EC homebuyers if the income ceiling is raised. Let’s also limit the size of EC homes to ensure that absolute sums needed to purchase any EC are affordable.
It is important that the EC model is improved so as to better serve the needs of motivated young Singaporeans, who want to purchase their dream home without receiving any parental help.
