Executive Condominiums (ECs) were first introduced in 1996 as a housing solution for the “sandwich class”—those whose incomes exceed the threshold required to qualify for Build-To-Order (BTO) flats but find private properties too expensive.
A hybrid housing model, ECs are developed by private developers but subject to certain Housing & Development Board (HDB) regulations during their first 10 years, after which they become fully privatised. For example, there is a five-year Minimum Occupation Period (MOP), after which the unit can only be sold to Singapore Citizens or Singapore Permanent Residents from year 6 to 10.
Over the years, the EC income ceiling has consistently been set at $2,000 higher than the BTO income ceiling. Currently, the BTO income ceiling is $14,000 per month, while the ceiling for ECs is $16,000 per month. In 2019, when the BTO income ceiling was $12,000, the EC income ceiling was $14,000. Before 2011, the BTO income ceiling was $8,000, and the EC income ceiling was $10,000. You get the idea.
But is the current EC income ceiling of $16,000 too low?
Property Prices Have Gone Up Significantly Over The Last Few Years But The EC Income Ceiling Has Not Changed
Since 2020, property prices in Singapore have increased substantially. For instance, the HDB Resale Price Index rose from 131.9 in Q2 2020 to 187.9 in Q2 2024. Similarly, the SRX Property Price Index for Private Non-Landed properties increased from 200.8 in April 2020 to 276.8 in April 2024.
Although Executive Condominiums (ECs) occupy a unique class of property, they are not immune to the general trend of rising residential property prices across Singapore. As property prices continue to climb, the cost of ECs has also naturally increased.
This trend is evident from the results of a recent tender bid for an EC site, which was announced earlier this month. Located at Jalan Loyang Besar in Pasir Ris, the top bid submitted was $729 per square foot per plot ratio (psf PPR), setting a new record for ECs. A rough estimate suggests that the developer would need to allocate around $500-$600 psf PPR for construction and marketing costs. Factoring in a 10-20% profit margin, this could result in a final price of around $1,500 per square foot or even higher, depending on the developer’s confidence to move units.
How Much Would An EC Today Cost?
While unit sizes may vary, it’s reasonable to assume that buyers looking for a 3-bedroom unit would hope to have at least 1,000 square feet of space, similar to that of a 4-room HDB flat. The maximum allowable size for an Executive Condominium (EC) unit is 1,722 square feet.
If the price per square foot is $1,500, buyers can expect to spend around $1.5 million for a 1,000 square foot unit. But how feasible is this for a household with a maximum EC income ceiling of $16,000?
The Mortgage Servicing Ratio (MSR) Limits How Much An Individual Can Borrow
For all housing loans taken to purchase an HDB flat or Executive Condominium, the Mortgage Servicing Ratio (MSR) applies. The MSR limits the portion of a borrower’s gross monthly income that can be used to repay property loans.
This means that a household with a gross monthly income of $16,000 cannot allocate more than $4,800 towards repaying their home loan.
Additionally, there is the Total Debt Servicing Ratio (TDSR), which includes car loans, credit cards, and student loans. It cannot exceed 55% of your monthly income. However, for this article, we will assume there are no such additional loans.
Can Buyers Afford The Loan?
To purchase an EC, you will need a down payment of at least 25%. For a $1.5 million unit, this translates to a minimum down payment of $375,000, leaving $1,125,000 (75%) to be borrowed.
Assuming a 3% interest rate over 25 years, the monthly repayment would be $5,335, which exceeds the MSR limit of $4,800. Therefore, this option doesn’t meet the MSR criteria.
A few alternatives need to be considered.
Increase the Loan Period: Extending the loan period to 30 years would reduce the monthly repayment to $4,743, which is just under the $4,800 MSR limit.
Lower the Interest Rate: If the interest rate were 2.0%, as it was two years ago, the monthly repayment for a $1,125,000 loan over 25 years would be $4,768. Unfortunately, given the current high interest rate environment, this is no longer a viable option.
Make a Larger Down Payment: You can reduce the loan amount needed by making a higher down payment. This option depends on whether you have sufficient cash or CPF savings available.
Read Also: How Much Down Payment You Have To Pay To Buy An Executive Condominium
The simple truth is that unless the buyer has received a significant windfall (e.g., from selling an existing home or get support from their parents), it is challenging for a household with an EC income ceiling of $16,000 monthly to afford a $1.5 million property. Even if they make it work by extending the loan period to 30 years, it raises questions about whether this is a sound financial decision.
It’s also important to note that our calculations in this article are already conservative. In reality, larger units will likely be available and come with significantly higher price tags. For instance, a 1,500-square-foot unit priced at $1,500 psf would cost $2,225,000, far beyond the reach of most EC buyers with a household income cap of $16,000—unless they can afford a substantial down payment of $1 million or more.
Additionally, we’ve assumed in this article that all EC buyers have a household income of $16,000, which represents the best-case scenario. In reality, many buyers are likely earning less than this limit, making the affordability challenge even greater.
Our estimate of $1,500 per square foot (psf) as a sales price is conservative. According to industry experts quoted in an article from EdgeProp, the launch price could range between $1,600 and $1,700 psf.
The key point to emphasise in this article is that, given the rising property prices in Singapore and the likely prices at which ECs will be sold by developers, it is increasingly difficult for buyers to comfortably afford these units based solely on their household income. Most buyers will likely need to have additional capital on hand to fund their purchase.
Read Also: 10 Upcoming Condominium And Executive Condominium Launches For 2H2024
The post Why The $16,000 EC Income Ceiling For EC May No Longer Makes Financial Sense appeared first on DollarsAndSense.sg.
