Executive Condominiums (ECs) were first introduced in 1996 as a housing solution for the “sandwich class” — for 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 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 years 6 to 10. Only after the EC becomes fully privatised in year 11, can owners sell for foreign buyers.
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. The last change happened in 2019, when the BTO income ceiling was $12,000, and 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 at $16,000 still 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 197.9 in Q4 2024. This represents over 50% increase in HDB resale prices in just over 4 years.
Similarly, the Private Residential Property Price Index for Private Non-Landed properties increased from 148.7 in Q2 2020 to 203.4 in Q4 2024 – rising over 36% in the same timeframe.
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 recent record tender bid for an EC site in Pasir Ris and Tampines, which were announced in 2H 2024. The project located at Jalan Loyang Besar in Pasir Ris attracted a top bid of $557 million – the highest price for an EC site. While it also set a new record for the highest per square foot per plot ratio (psf PPR), this was swiftly broken a few months later with the Tampines site.
Located at Tampines Street 95, the top bid submitted was $769 per square foot per plot ratio (psf PPR), which set a new record for ECs.
A rough estimate suggests that the developers 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 $1,550 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 about 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 $1,550, buyers can expect to spend around $1.6 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 buy an HDB flat or Executive Condominium, the Mortgage Servicing Ratio (MSR) applies. The MSR limits the proportion of a borrower’s gross monthly income that can be used to repay property loans. This is currently capped at 30%.
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 $1.6 million unit, this translates to a minimum down payment of $400,000, leaving $1,200,000 (75%) to be borrowed. We are not even taking into consider stamp duties and legal fees, which may amount to nearly $60,000.
Assuming a 3% interest rate over 25 years, the monthly repayment would be $5,691 (according to the Mortgage Repayment Calculator from our friends at Redbrick). Obviously, this exceeds the MSR limit of $4,800.
A few alternatives need to be considered.
Increase the Loan Period: Extending the loan period to 30 years would reduce the monthly repayment to $5,059, which is just above the $4,800 MSR limit.
Lower the Interest Rate: If we can secure an interest rate of 2.5% instead, as some backs may be offering today, the monthly repayment for a $1,200,000 loan over 30 years would be $4,741. This is just within the MSR limit.
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 getting support from their parents), it is challenging for a household with an EC income ceiling of $16,000 monthly to afford a $1.6 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, the largest units in an EC will likely be available at significantly higher price tags. For instance, a 1,500-square-foot unit priced at $1,550 psf would cost $2,325,000, 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, buyers may not earn exactly the what the ceiling requires, making the affordability challenge even greater.
Our estimate of $1,550 per square foot (psf) as a sales price is also conservative. According to industry experts quoted in an article from EdgeProp from August 2024, the launch price could range between $1,600 and $1,700 psf. Given strong property prices since then, launch prices could be even higher.
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.
