Considerations Before Buying an Executive Condominium (EC)
Executive Condominium (EC) was introduced in Singapore’s property market in 1999. The purpose is to meet the aspirations and housing needs of the "sandwiched" class, whose household incomes exceed the ceiling for Housing and Development Board's (HDB) Build-to-Order (BTO) flats (basically, new HDB flats), but are not ready to afford a private condominium.
Therefore, they are often in a dilemma to buy a resale HDB flat to meet their housing needs or to delay their marriage plan until they can comfortably commit to a private residential property.
The government has recently raised the monthly household income ceiling for purchase of EC by $2,000. Henceforth, the income ceiling will be pegged to $16,000 for any Option to Purchase (OTP) granted by the property developer on or after 11 September 2019.
Unlike the HDB BTO flat, the EC is purchased directly from the property developer. Since its inauguration, 66 ECs have been successfully launched in the market, while 63 have been completed.
The features and characteristics, such as club house, swimming pools, sports facilities and 24-hour security system, are of no difference between an EC and a private condominium.
Although the purchase price of an EC is usually about 20% lower than a private condominium, it is subjected to the set of conditions like the purchase of an HDB flat. Similarly, eligible EC buyers can also apply for the CPF housing grants.
For more details on eligibility conditions, please refer to https://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/new/eligibility/executive-condominiums
Housing Grant for EC
CPF Housing Grants
Buyers of EC can also get to enjoy most of the benefits like the HDB buyers. The CPF Housing Grants available for EC purchases from developers are shown below.
· Family Grant – for first time grant applicant who has not received any housing subsidy from HDB.
· Half-Housing Grant – for a first time SC applicant and a second time co-applicant who has taken 1 housing subsidy before.
Both the buyer and any co-applicants must be eligible for the grant at the point of booking the EC. The grants are pegged to the household gross monthly income as stipulated in the table.
For more details on housing grants, please refer to https://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/new/schemes-and-grants/cpf-housing-grants-for-ecs
Buyers from a SC/SPR household can apply for the Citizen Top-Up, when the SPR family member takes up Singapore Citizenship or when they have an SC child.
For more details on Citizen Top-Up, please refer to https://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/new/citizen-top-up
The purchase of an EC entails certain conditions that apply before it can be sold, rented out, or another subsidised property could be bought.
Selling of Existing HDB/ DBSS Flat
All buyers listed in the EC application must dispose of their existing HDB property within 6 months of taking possession of the EC unit.
Housing Subsidy Taken
The buyers listed in the EC application will be considered as having taken a housing subsidy when they purchase an EC directly from developers.
Minimum Occupation Period (MOP)
Sale of EC
The purchased EC can only be sold in the open market after the 5-year MOP (from the date of Temporary Occupation Period) has been met. However, it can only be sold to SC or SPR before the full privatisation is achieved after 10 years.
Essential Occupiers in EC
Occupiers, who are essential in forming a family nucleus as listed in the EC application, must continue to stay in the EC during the 5-year MOP. They are not allowed to make a separate application, or to be listed as occupiers in another application for HDB flat or EC purchase within the MOP.
Entire EC Unit
Renting out of entire EC unit is not allowed within the 5-year MOP.
Although buyer needs not seek prior approval from HDB to rent out the bedrooms in the EC within the MOP, the room rental must be registered with HDB within 7 days of signing the rental agreement. Buyer is also required to inform HDB when there is any renewal or termination of the room rental, and when there are changes to the tenants’ details. The registration of room rental can be done at the HDB Branch managing the EC or online.
Purchasing Another Subsidised HDB Property
After selling the EC in open market, the owner must wait 30 months before any submission of application to buy another HDB property, including:
· A new BTO flat directly from HDB.
· An apartment under the Design, Build and Sell Scheme (DBSS) from developers.
· Another EC from developers.
To ensure a fairer allocation of housing subsidies among home buyers, the resale levy is meant to reduce the housing subsidy for the second subsidised flat or EC purchased. As such, buyer is liable to pay a resale levy of $55,000:
· When an EC bought with the CPF Housing Grant is sold and a second subsidised HDB flat is bought or its ownership is being taken over, after meeting the MOP and 30-month waiting period requirements.
· Buy an Executive Condominium (EC) from a developer where the land sale was launched on or after 9 December 2013.
There is no need to pay resale levy if buying a resale flat, a new DBSS flat, an EC from a developer where land sale was launched before 9 Dec 2013 or a private residential property.
Buying Private Property
Buyer can only buy a private residential property after the 5-year MOP.
Similarities and Differences of Purchasing EC from Private Condominium
Down Payment. The down payment scheme is same as private property, with a minimum of 20%. A booking fee of 5% cash upon issued with the OTP and another 15% using CPF or cash upon signing the Sales & Purchase Agreement or within 8 weeks after date of Option.
Progressive Payment. The schedule for progressive payment is same as that of a new private residential property under construction. The remaining payments will be disbursed accordingly upon the completion of each construction stage:
Home Loan. Like private property, the home loan for EC can only be taken from private banks.
Maintenance/ Sinking Fund. A Management Corporation Strata Title (MCST) will be set up for the EC and, similarly, owner will have to pay for the maintenance/ sinking funds for the upkeeping of the estate.
Eligibility Conditions. EC buyer must meet a list of eligibility criteria as stated above. Whereas, there is no requirement for private condominium buyers.
Existing HDB Property. It is mandatory to dispose existing HDB property within 6 months from getting the keys to the new EC. However, buyer of private condominium gets to keep the existing HDB property.
Minimum Occupation Period. Buyer of EC must occupy a minimum of 5-year before the entire EC unit can be rented out or sold in open market. Whereas, private condominium can be rented out immediately upon TOP or even put up for sub-sale after its purchase (subjected to Seller Stamp Duty).
Return of Investment. If the intention of acquiring the EC is for investment, it is important to note that EC investment will incur higher net holding costs as the entire unit cannot be rented out in the first 5 years. This is unlike private condominium, where buyer has the free play upon TOP.
Financing of EC
After qualifying the requirements for purchasing of an EC and understanding the considerations of buying an EC over a HDB or a private condominium, it is essential to also plan for funds to cater for its mortgage repayments.
Although the home loan for EC can only be financed private banks, it is still subjected to HDB regulations. Therefore, both limits for total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), for HDB property purchases, must be satisfied to be eligible for a private bank home loan.
As the limit for MSR is more stringent than the TDSR, buyer who satisfy the MSR would usually also meet the TDSR limit requirements.
For more details on home loan and computation of TDSR and MSR, please refer to another article through this link https://www.christinekangproperties.com/post/one-stop-guide-for-your-home-loan
Mary is 30 years old earning $7,000 and Tom is 33 years old with an income of $8,000. What will be their loan limit? What is the selling price of the EC they can afford?
The Income Weighted Average Age (IWAA) = 32 years old (rounded up).
Therefore, based on the borrower’s age limit of 75 years old used by most financial institutions, their loan tenure can be up to 43 years (75–32=43).
But the authority has capped the maximum tenure for non-HDB properties to 35 years.
Mary and Tom decided to take a loan with a loan tenure of 30 years.
With a combined household income of $15,000, it can be derived from the MSR loan table above, their eligible loan amount will be $1million.
Nevertheless, they are not qualified for the 1st timer family grant as their combined income has exceeded $12,000.
So, with eligible loan of $1 million (which is up to 75% of purchase price), Mary and Tom can purchase an EC of $1.33 million.
The amount they will have to pay for down payment:
Booking Fee (5%) = $62,500 (cash only)
Deposit (15%) = $187,500 (cash and/ or CPF)
Stamp Duty = $32,100 (cash, can be reimbursed from CPF later)
They will have to pay another 5% of the property price using cash and/ or CPF during the first payment, as the loan is only up to 75%. The rest of the progressive payments is disbursed via bank loan according to the construction schedule as mentioned earlier.
Mary and Tom can service the monthly mortgage repayments of $3,200 (based on the loan interest rate of 2%) using cash and/ or CPF.
A couple with a combine household income of $10,500 and IWAA is 50 years old.
As first timer, they are eligible for a family grant of $20,000.
Their eligible loan tenure is 25 years (75-50).
From MSR loan table above, the maximum loan amount eligible is $629,219 (or not more than 75% of purchase price).
The couple can purchase an EC of value $838,958.
The amount they will have to pay for down payment:
Booking Fee (5%) = $41,948 (cash only)
Deposit (15%) = $125,844 (cash and/ or CPF)
Stamp Duty = $19,768 (cash, can be reimbursed from CPF later)
The $20,000 housing grant can be used to offset the balance down payment for the EC and subsequent payments towards the purchase price to reduce the mortgage loan.
However, this grant cannot be used for the minimum cash down payment and monthly mortgage repayments.
They will have to pay another 5% of the property price using cash and/ or CPF during the first payment, as the loan is only up to 75%.
The rest of the progressive payments is disbursed via bank loan according to the construction schedule as mentioned earlier.
The couple can service the monthly mortgage repayments of $2,667 (based on loan interest rate of 2%) using cash and/ or CPF.
To understand more on the usage of CPF for housing, please click the link
Does EC Gain Value over Time?
EC unit purchased directly from the developer is at a discount of 20% to 25% from the price comparable to new private condominium. Furthermore, the price difference between resale ECs and resale private condominium closes to about 9% and 5% after the EC reaches its 5 years MOP and 10 years privatisation, respectively.
Although new ECs are subjected to the 30% MSR limit, which is effectively controlling its rising demands, resale ECs are not subjected to MSR restriction after the MOP. Like other private condominiums, buyers of resale ECs will only be bound by the TDSR framework. Therefore, demands for resale ECs would increase and likewise for EC prices.
Upon reaching its full privatisation after 10 years, the EC is just like any other private condominium. Notwithstanding, with the substantial subsidies and lower prices compared with private condominiums, ECs are primed to be a good investment in the longer-term.
After knowing the considerations of buying an EC, please contact me @94742623 if you still have any doubts and concerns over EC purchase.
If you think you would like to explore the type of EC that may suit you better, we can arrange to meet at any of the ECs either OLA, Parc Canberra or Piermont Grand showflats which I can assist in giving you the right advice for you to choose the right unit.
Choosing the right unit will mean a difference in a huge profit from the property when you sell it later. Appointment can be made as from the following calendar :
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I am a Real Estate professional with proven records and 10 years’ experience in helping clients to acquire their dream homes and fulfilling their property investment goals. Skilled in facilitating purchase, sale and leasing of commercial, industrial, private residential and HDB properties, I enjoy my interactions with clients and find joys and sense of fulfilment whenever they found the properties that met their needs or when they benefited from their investments in the properties that I had helped them purchase.