The cost of executive condos is pushing affordability to the limit. Is it time for a new model?
Singapore is a city where many young people struggle to achieve their private housing dreams. An executive condominium is a cost-effective option for Singaporeans to become private homeowners. New ECs are cheaper than comparable condos – possibly by over a third.
The appetite for new ECs is strong. City Developments Ltd – C09 +1.18%, the developer of the Lumina Grand EC development in Bukit Batok said that at 12pm on January 28, 269 units (53%) of the 512 homes had been sold since the official launch day before. The average price per square foot was approximately S$1,464
Some new ECs today are hardly affordable, even though they are less expensive than condos.
If you assume a price of S$1,460 per square foot, a 1,000-square-foot EC house – the same size as a Housing and Development Board four-room apartment – will cost S$1.46million, excluding legal and stamp duty. A new 1,200 sq ft EC apartment, roughly the same size as a HDB five-room unit, could cost around S$1.75million.
The EC is a combination of public and privately owned housing. ECs are typically built and sold by private developers and sit on 99-year-leasehold land. They also offer condo features.
Couples consisting of two Singaporeans or a Singaporean and a Permanent Resident (PR) are eligible to purchase EC units. Single Singaporeans who are at least 35-years-old and Singapore citizens also qualify.
The new EC unit must be occupied for a minimum of five years after the project is completed. During this time, it cannot be rented or sold. After five years the EC unit may be sold or rented to Singaporeans or PRs. After 10 years the EC unit is available to be purchased by anyone, including foreigners.
Local couples who are unable to meet the HDB Build-To Order (BTO flat income ceiling of S$14,000 per month but can afford to pay S$16,000 for a new EC home may be interested in buying EC units. Local couples with monthly incomes above S$12,000 are not eligible for the CPF housing grant to purchase an EC unit.
Some of the new EC houses may have been fueled by parents helping their adult kids with home purchase funding.
The affordability of new EC homes for young couples who do not have parental support may also be stretched. A couple who just barely meets the income limit to purchase a new EC unit, would need a S$1.46million unit. This is 7.6 times its monthly income of S$16,000 or S$192,000 per year.
If the EC unit is purchased at a cost of S$365,000, and 75 percent is funded by debt with the remainder by equity, then the couple will struggle to raise the S$365,000 in cash and CPF funds for the equity portion.
The couple could also be in breach of the mortgage service ratio (MSR) that applies to new EC home buyers. MSR is the percentage of the borrower’s gross income each month that goes to repaying their property loans. This includes the loan they are applying for. The maximum is 30 percent of the borrower’s gross income.
Monthly payment for a 30-year S$1.095m (75 percent of S$1.46m) home loan at 4% annual interest is S$5,228, which is almost 33 per cent the couple’s S$16,000 income. The monthly payment for a 25-year mortgage is S$5,780 or more than 36 percent of the couple’s income.
The limit on the total debt service ratio is also applicable to EC homebuyers. This ratio looks at a borrower’s monthly total obligations.
The income limit for new EC home buyers – which was last raised in 2019 – should be increased to S$20,000 per monthly. A couple earning S$10,000 per person would have to pay S$1.46m for a new EC house. This is 6.1 times the combined annual income of S$240,000.
The monthly instalments are S$5,228 or S$5,780, which is about 26 and 29 percent of the household income of S$20,000.
About 15 percent of residents working in Singapore aged 15 and older, excluding national servicemen on full-time duty, will earn S$10,000 or more per month gross, after subtracting employer CPF contributions.
A cap on the size of EC homes can also help young people who don’t receive parental assistance to buy a new home.
Lumina Grande offers 51 units with five bedrooms, ranging from 1,496 to 1,711 square feet.
A 1,500 sq ft EC house costing S$2,15 million is approximately 11.2 times the annualised monthly salary of S$16,000 and nine times that of S$20,000.
The size of a new EC house can be capped to 1,200 square feet. A 1,200 square foot home costs approximately S$1.75million. This is approximately 9.1 and 7.3 times the annualised monthly earnings of S$16,000 & S$20,000 respectively.
HDB BTO, which offers homes at sub-discounted prices, is a popular market for young Singaporeans to become homeowners.
Developers set the price of new EC houses. Prices may also be affected by the rising land prices developers pay at competitive tenders to secure EC sites. The highest bidder for a Tengah EC Site that closed last Thursday was S$701 psf/plot ratio.
Young Singaporeans with a successful career can benefit from buying a new EC house.
We should release more EC sites, including those in prime locations. Increasing the income limit will also expand the pool of potential EC buyers. We can also ensure that the absolute amounts required to purchase any EC house are affordable by capping EC unit sizes.
The EC model should be improved to meet the needs and desires of young Singaporeans who are motivated to buy their dream homes without parental assistance.