EC Buying

Singapore Property News
An EC choice to make

Exec condos now offer much better value for money than DBSS flats
The Straits Times – September 7, 2011
By: Jessica Cheam


THERE is some talk in recent months that Singapore’s red-hot property market is finally cooling somewhat, dampened by global economic uncertainty and fears of a property bubble.

But one segment of the market still sizzles: executive condominiums (ECs), which have Housing Board-style ownership restrictions but all the facilities of private condominiums.

ECs were introduced in 1996 to provide a new housing option for the ‘sandwich class’ of middle-income buyers who aspired to private condo-style living but were unable to afford the prices.

ECs boast facilities of private estates such as swimming pools and a gated community, but are subject to such HDB rules as an income ceiling for buyers and minimum occupation period before they can be sold. They are considered a hybrid of public and private housing on purchase, but are converted into private housing after 10 years, when units can be sold freely, including to foreigners.

The HDB was also just launching its Design, Build and Sell Scheme (DBSS) to let private developers build and sell public housing, promising home-buyers more innovative designs.

Analysts even said then that the Government may scrap ECs if DBSS proved successful since both types of housing target the same group – young families from the middle-income group.

How things have changed in five years. Today, it is ECs that are popular and the DBSS scheme that has become unattractive.

The HDB is reviewing the DBSS programme. National Development Minister Khaw Boon Wan has suspended all future land sales for DBSS projects, even while 11 sites have been sold as EC projects since last March.

Why the reversal of fortunes?

First, the perception now is that ECs offer much better value for money. Private property prices have climbed to record highs and put homes out of the reach of many aspiring HDB owners, but some ECs remain affordable.

The Arc at Tampines may have set new records for EC prices at slightly above $700 psf. But it is still much cheaper than similar mass-market condos in the area such as Waterfront Gold, launched at just below $1,000 psf earlier this year.

One reason for the lower prices is that under HDB rules, only families who are citizens can buy ECs. There is an income ceiling, which was recently raised from $10,000 to $12,000 a month. First-time buyers also qualify for various housing grants.

In contrast, DBSS flats have been priced at a big premium over new subsidised HDB flats, which are their competitors. The Centrale 8 project in Tampines was priced in the $600 psf to $700 psf range – almost double that of comparable build-to-order (BTO) HDB flats.

Secondly, resale conditions favour buyers of ECs. After five years, DBSS flats become HDB resale flats, which are subject to HDB ownership restrictions which change from time to time. The latest rules prohibit foreigners and private property owners from buying HDB resale flats. In contrast, ECs eventually become private property, which can be sold to any Singaporean after five years, and to foreigners after 10.

An EC buyer thus competes with fewer people when buying a unit; but can sell the unit after five years to a much wider pool. This explains their capital gains after the property market rebounded. Many EC projects were launched in the $360 to $460 psf range. They fetched an average of $683 psf from June to date on the open market when sold, according to Credo Real Estate’s head of research Ong Teck Hui.

For example, Westmere, an EC in Jurong, was launched in 1996 at $400 psf. This year, its resale transactions averaged $707 psf – a price appreciation of 77 per cent. In its vicinity, the average price of private condominium Parc Oasis rose from $666 psf in 1996 to $760 psf this year – a 14 per cent increase.

This has reinforced buyers’ perception that, barring a crash in the market, ECs are a ‘sure win’ proposition.

The factors underpinning the rise of ECs and the decline of DBSS – and the clear preference of buyers today – raise the question of whether the Government should just let the DBSS scheme lie fallow and release more land for ECs.

In the past, the DBSS scheme was conceived as an experiment to outsource development of public housing to the private sector, leaving the HDB to eventually assume a more ‘regulatory role’. But this policy objective is less relevant today, as Singaporeans want affordable public housing provided by the state, not pricey private developers.

The right mix of public and private housing for Singapore may well be a simple one: new subsidised HDB flats on one end of the spectrum; private property on the other; and executive condominiums as the in-between class, catering to the aspirations of middle-class HDB upgraders.



New rule Refining the Executive Condominium Housing Scheme

(News release on 9 December 2013 @ 7.30pm)

The Ministry of National Development (MND) has introduced three new measures to align the executive condominium (EC) scheme with that of public housing and support a sustainable EC market.

Firstly, the cancellation fees for ECs has been reduced from 20 percent to five percent of the purchase price, to relieve the financial burden of buyers who have to cancel their bookings after signing the Sale & Purchase Agreement.

The new fees will apply to land sales launched on or after 9 December, including those where the tenders have not closed.

Currently, the cancellation fee is similar to that of private housing at 20 percent. But unlike private home buyers, EC buyers cannot sub-sell their units if they fail to complete their purchase, hence the fee.

The fee had put significant financial pressure on young couples who were not able to proceed with their marriage and subsequently the EC purchase. The reduction will align the cancellation fee for EC units with that of Build-to-Order (BTO) flats.

Meanwhile, second-timer applicants purchasing EC units directly from developers will now have to pay a resale levy, just like second-timer applicants purchasing BTO flats.

The new levy will apply to land sales launched on or after 9 December, including those where the tenders have not closed.

At the moment, second-timer applicants purchasing EC units directly from developers benefit from lower prices due to the initial eligibility and ownership restrictions imposed on EC buying.

The alignment of treatment with second-timer applicants purchasing BTO flats will ensure greater parity.

Finally, the Monetary Authority of Singapore (MAS) will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions for EC units bought directly from developers at 30 percent of a borrower’s gross monthly income.

This is in line with earlier measures rolled out by the HDB and MAS to encourage financial prudence among public housing buyers. The move discourages EC buyers from over-stretching their finances while supporting an affordable and sustainable EC market.

The 30 percent MSR cap will apply to EC purchases where the Option to Purchase is granted on or after 10 December.