Types of housing in Singapore
Singapore’s Real Estate is highly booming and sought after not only by locals but also foreign investors. Before we delve into executive condominiums, it is important to note that Singapore has 3 types of properties.
- Public (HDB),
- Public-Private Hybrid
Public housing is managed by the State, Public-Private Hybrid type is partially subsidized by the State, and Finally, the Private Property is built on freehold land and bears little or no government restrictions. Around 80% of Singapore’s residents are dwelling in HDB Flats. The rest is shared among the other two types. The graph below summarizes the numbers of each type of property over the years.
What is an Executive Condominium (EC)?
An Executive condominium, as mentioned earlier, is a ‘Public-Private” type of property. The HBD Flats are regulated by the government to be only eligible for citizens falling in a specific income group. The Executive Condominiums are partially subsidized by the government, and hence they cater to the people whose income is beyond the ceiling of HBD houses, but private housing is expensive for them.
The Condominiums are developed and sold by private developers. These properties tend to have the same amenities in a private condo-like swimming pools, gymnasiums, and community clubs, etc. We will delve into the pros and cons of buying an EC for a cost-benefit analysis of this kind of property.
In 2013, Asia One reports that Minister Khaw Boon Wan likened the purchase of an EC to buying a Lexus at the price of a Corolla. The quote helps stress the fact that ECs are much cheaper than private condos due to the element of subsidy by the government, and as mentioned before, they have similar facilities as compared to private housing. Therefore, they are quite popular in Singapore, and the number of ECs offered for sale is increasing every year.
- Entry into the private housing market
The Executive Condominiums are regulated by the government given their subsidy. A buyer has to fulfill a Minimum Occupation Period (MOP) of 5 years before being allowed to sell or rent the property to Singaporean Citizens and Permanent Residence (PR) Holders. However, after the 10-years, the owner is able is sell and rent the property to anyone, similar to private property. Hence, EC is also sometimes described as Private property in the making.
On the other hand, an HDB flat is usually available on a 99-year lease by the government. The value of the property tends to deplete as the property reaches the end of its lease period. Therefore, it is quite advantageous to buy an EC that will later become private property.
- Capital Gains
The Executive Condominiums tend to generate a very high capital gain. The median sales price of ECs in Singapore was SGD 1,104/ Sq. ft. in 2021 as compared to SGD 790 / Sq. ft. in January 2014, exhibiting a 40% average price increase. Moreover, the ECs are sold as private property after 10 years which enables them to enjoy a jump in valuation and hence a greater capital gain after a decade. The graph below summarizes the price trends of ECs in Singapore.
Source: Squarefoot Research
- Eligibility to CPF Grants
The Citizens of Singapore are eligible to get a CPF housing grant of up to 30,000 Singaporean Dollars, depending on their income. The grant helps offset some of the purchase prices of the property.
- Specially designed for the ‘Sandwich Class’
The Middle-income families of Singapore, whose monthly income is higher than 16,000 Singaporean dollars are not eligible to apply for HBD houses. The ECs reduce the economic burden of this middle-income class by providing them a subsidized living solution.
- Superior Designs
Due to the government regulation of the Minimum occupation period, the ECs are designed for families. These tend to be superior in terms of the number and size of rooms. These usually attract families as compared to private condos as it attracts private investors and foreign expatriates as well.
- Government Regulations
As mentioned, the government regulates the ownership rules of the EC’s. The government has a 5-year minimum occupation period which means that you have to live in your house for 5 years, after which you will only be able to sell it to Singaporean Citizens and Permanent Residency holders. Other than that, you will also need to meet other requirements like the minimum income cap and other eligibility criteria stipulated by the government.
And the property becomes a ‘private’ property after only 10 years and can therefore be sold like one. But that would mean you’re committed to about 10 years in your investment.
- Outskirts location
One way to reduce the price of the property is to build it on cheaper land. Hence, most of the ECs are built on the outskirts of Singapore City. Most of these properties are not in close proximity to MRT stations. This poses a huge disadvantage for residents for their daily commute. Moreover, the residents live away from the amenities of the city center like shopping malls, restaurants, and cafes.
- Eligibility to limited sources of financing
The applicants for ECs are not eligible for HDB loans. They have to turn to bank loans to finance their purchase. The bank loans are subjected to a loan to value ratio (LTV) by the government of 75%. Hence, the 25% of the down payment for the EC has to be made in advance. This puts serious pressure on households, especially middle-income ones.
It is important to note that the CPF grant may cover the upfront cost, but 5% of the payment has to be made in cash.
The government also regulates the amount of financing available for a resident; the mortgage servicing ratio (MSR) has to be within 30%, meaning that the loan payment must not exceed 30% of the cumulative family income. Moreover, the Total Debt Servicing Ratio (TDSR), which includes total liabilities of a household like student loans and credit card payments, must not exceed 60% of the cumulative income.
- Fewer EC Launches
As mentioned earlier, EC launches have been increasing over the past decade in Singapore; they are still very meager as compared to their demand. Usually, when an EC is launched in the city, people flock to subscribe for the opportunity to obtain it, and hence, applicants face tough competition obtaining an EC. According to Asia One, only 3 ECs were launched in 2019, and 5 were launched this year, namely Parc Canberra, Parc Central Residencies, Parc Greenwich, Piermont Grand, and The Ola.
- CPF Grants are not applicable for resale
The buyers of resold ECs are not eligible to apply for a CPF grant, as they fall under the category of private properties. This poses a disadvantage for buyers and, consequently, sellers whose properties are subject to lower demand and, therefore, lower capital gain.
ECs have been a great addition to the housing of Singapore since 1991. They provide a great opportunity for middle-income families to own houses at subsidized rates. However, whether an EC is the right choice for a customer depends on their circumstances. It is crucial to conduct a cost-benefit analysis, thereby evaluating the pros and cons in detail for making an optimal decision.