New Reporter
07-02-24, 12:20
Executive condo prices are stretching affordability limits. Is it time to refine the model?
Leslie Yee
Feb 05, 2024
MANY young persons struggle in chasing private housing aspirations in Singapore. A cost-effective way for locals to get into private homeownership is to buy an executive condominium (EC). New EC units are way cheaper than comparable new condo units – by possibly over a third.
Appetite for new EC homes is healthy. For the Lumina Grand EC in Bukit Batok, developer City Developments Ltd said that as at 12 pm on Jan 28, a total of 269 units or 53 per cent of the development’s 512 homes were sold following the official launch the day before. The average price achieved was around S$1,464 per square foot.
https://i.imgur.com/JA7lHNU.png
While new ECs are cheaper than new condos, some new EC units nowadays are hardly affordable.
Assuming pricing of S$1,460 psf, a new EC home of 1,000 square feet – roughly the size of a Housing and Development Board (HDB) four-room flat – would cost S$1.46 million, excluding stamp duty and legal fees. The cost could be around S$1.75 million for a new 1,200 sq ft EC unit, which is about the size of an HDB five-room flat.
The EC is a hybrid of public and private housing. Built and sold by private developers, ECs typically sit on 99-year leasehold land and offer condo features.
Eligible buyers of EC units from a developer include couples comprising two Singapore citizens or a citizen and a permanent resident (PR), as well as singles who are citizens and at least 35 years old.
Buyers of new EC units are subject to a minimum occupation period of five years from project completion, during which the home cannot be sold or rented out whole. After five years, the EC unit can be sold to Singapore citizens or PRs, or rented out whole. After 10 years, the EC unit can be sold to anyone – including foreigners – just like a private condo.
Potential buyers of new EC homes include local couples, who bust the monthly household income ceiling of S$14,000 to buy an HDB Build-To-Order (BTO) flat but meet the income ceiling to buy a new EC unit of S$16,000 per month. A local couple whose monthly income exceeds S$12,000 cannot get the CPF Housing Grant to buy an EC home.
Parents helping their adult children with funding home purchases may be fuelling some of the liquidity for new EC homes.
Stretched affordability
Meanwhile, affordability of new EC units for young couples, who have no parental assistance, may be stretched. For a couple that just meets the income ceiling to buy a new EC home, a S$1.46 million unit would be about 7.6 times their annual income of S$16,000 a month, or S$192,000 a year.
Assuming the EC unit’s purchase price is 75 per cent funded by debt and the remaining funded by equity, the couple could struggle to find S$365,000 from cash and CPF savings for the equity portion.
Moreover, the couple may breach the mortgage servicing ratio (MSR), which applies to buyers of new EC homes. MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. It is capped at 30 per cent of a borrower’s gross monthly income.
The monthly instalment on a 30-year S$1.095 million (75 per cent of S$1.46 million) home loan with annual interest rate of 4 per cent is S$5,228, or nearly 33 per cent of the couple’s income of S$16,000. For a 25-year loan, the monthly instalment is S$5,780, or over 36 per cent of their income.
In addition, the limit on total debt servicing ratio, which looks at a borrower’s total monthly debt obligations, applies to EC home buyers.
Perhaps, the income ceiling for buyers of new EC homes – last increased in 2019 – should be raised to S$20,000 per month. For a couple earning S$10,000 each, a new EC home costing S$1.46 million would be around 6.1 times their annualised combined income of S$240,000.
Monthly instalments of S$5,228 and S$5,780 are about 26 per cent and 29 per cent respectively of their monthly household income of S$20,000.
In 2023, about 15 per cent of employed residents aged 15 years and over, excluding full-time national servicemen, earned S$10,000 per month or more in gross income from work, excluding employer CPF contributions.
Capping unit size
Additionally, a move that may aid young persons who do not receive parental help buy new EC homes is to cap the size of such homes that developers can build.
At Lumina Grand, there are 51 five-bedroom units of 1,496 to 1,711 sq ft.
A 1,500 sq ft EC home costing S$2.15 million is about 11.2 times of an annualised monthly income of S$16,000, and nine times of an annualised monthly income of S$20,000.
Possibly, the size of a new EC home can be capped at 1,200 sq ft. At S$1,460 psf, a 1,200 sq ft home costs around S$1.75 million. This is about 9.1 times and 7.3 times of annualised monthly incomes of S$16,000 and S$20,000, respectively.
Many young Singaporeans receive help in becoming homeowners in the HDB BTO market, where homes are sold at subsidised prices.
In contrast, developers set the prices of new EC homes. And prices may be impacted by rising land prices paid by developers at competitive tenders for EC sites. The top bid for the tender of a Tengah EC site that closed last week was S$701 psf per plot ratio.
Buying a new EC home can be suitable for young Singaporeans who are progressing well in their careers.
Let’s release more EC sites including in prime locations. Concurrently, let’s expand the pool of new EC homebuyers by raising the income ceiling. Also, let’s ensure absolute sums required to buy any EC home are kept affordable by capping the size of EC units.
May the EC model be refined to better meet the needs of driven young Singaporeans in buying their dream homes sans receiving parental help.
https://www.businesstimes.com.sg/opinion-features/executive-condo-prices-are-stretching-affordability-limits-it-time-refine-model
Leslie Yee
Feb 05, 2024
MANY young persons struggle in chasing private housing aspirations in Singapore. A cost-effective way for locals to get into private homeownership is to buy an executive condominium (EC). New EC units are way cheaper than comparable new condo units – by possibly over a third.
Appetite for new EC homes is healthy. For the Lumina Grand EC in Bukit Batok, developer City Developments Ltd said that as at 12 pm on Jan 28, a total of 269 units or 53 per cent of the development’s 512 homes were sold following the official launch the day before. The average price achieved was around S$1,464 per square foot.
https://i.imgur.com/JA7lHNU.png
While new ECs are cheaper than new condos, some new EC units nowadays are hardly affordable.
Assuming pricing of S$1,460 psf, a new EC home of 1,000 square feet – roughly the size of a Housing and Development Board (HDB) four-room flat – would cost S$1.46 million, excluding stamp duty and legal fees. The cost could be around S$1.75 million for a new 1,200 sq ft EC unit, which is about the size of an HDB five-room flat.
The EC is a hybrid of public and private housing. Built and sold by private developers, ECs typically sit on 99-year leasehold land and offer condo features.
Eligible buyers of EC units from a developer include couples comprising two Singapore citizens or a citizen and a permanent resident (PR), as well as singles who are citizens and at least 35 years old.
Buyers of new EC units are subject to a minimum occupation period of five years from project completion, during which the home cannot be sold or rented out whole. After five years, the EC unit can be sold to Singapore citizens or PRs, or rented out whole. After 10 years, the EC unit can be sold to anyone – including foreigners – just like a private condo.
Potential buyers of new EC homes include local couples, who bust the monthly household income ceiling of S$14,000 to buy an HDB Build-To-Order (BTO) flat but meet the income ceiling to buy a new EC unit of S$16,000 per month. A local couple whose monthly income exceeds S$12,000 cannot get the CPF Housing Grant to buy an EC home.
Parents helping their adult children with funding home purchases may be fuelling some of the liquidity for new EC homes.
Stretched affordability
Meanwhile, affordability of new EC units for young couples, who have no parental assistance, may be stretched. For a couple that just meets the income ceiling to buy a new EC home, a S$1.46 million unit would be about 7.6 times their annual income of S$16,000 a month, or S$192,000 a year.
Assuming the EC unit’s purchase price is 75 per cent funded by debt and the remaining funded by equity, the couple could struggle to find S$365,000 from cash and CPF savings for the equity portion.
Moreover, the couple may breach the mortgage servicing ratio (MSR), which applies to buyers of new EC homes. MSR refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for. It is capped at 30 per cent of a borrower’s gross monthly income.
The monthly instalment on a 30-year S$1.095 million (75 per cent of S$1.46 million) home loan with annual interest rate of 4 per cent is S$5,228, or nearly 33 per cent of the couple’s income of S$16,000. For a 25-year loan, the monthly instalment is S$5,780, or over 36 per cent of their income.
In addition, the limit on total debt servicing ratio, which looks at a borrower’s total monthly debt obligations, applies to EC home buyers.
Perhaps, the income ceiling for buyers of new EC homes – last increased in 2019 – should be raised to S$20,000 per month. For a couple earning S$10,000 each, a new EC home costing S$1.46 million would be around 6.1 times their annualised combined income of S$240,000.
Monthly instalments of S$5,228 and S$5,780 are about 26 per cent and 29 per cent respectively of their monthly household income of S$20,000.
In 2023, about 15 per cent of employed residents aged 15 years and over, excluding full-time national servicemen, earned S$10,000 per month or more in gross income from work, excluding employer CPF contributions.
Capping unit size
Additionally, a move that may aid young persons who do not receive parental help buy new EC homes is to cap the size of such homes that developers can build.
At Lumina Grand, there are 51 five-bedroom units of 1,496 to 1,711 sq ft.
A 1,500 sq ft EC home costing S$2.15 million is about 11.2 times of an annualised monthly income of S$16,000, and nine times of an annualised monthly income of S$20,000.
Possibly, the size of a new EC home can be capped at 1,200 sq ft. At S$1,460 psf, a 1,200 sq ft home costs around S$1.75 million. This is about 9.1 times and 7.3 times of annualised monthly incomes of S$16,000 and S$20,000, respectively.
Many young Singaporeans receive help in becoming homeowners in the HDB BTO market, where homes are sold at subsidised prices.
In contrast, developers set the prices of new EC homes. And prices may be impacted by rising land prices paid by developers at competitive tenders for EC sites. The top bid for the tender of a Tengah EC site that closed last week was S$701 psf per plot ratio.
Buying a new EC home can be suitable for young Singaporeans who are progressing well in their careers.
Let’s release more EC sites including in prime locations. Concurrently, let’s expand the pool of new EC homebuyers by raising the income ceiling. Also, let’s ensure absolute sums required to buy any EC home are kept affordable by capping the size of EC units.
May the EC model be refined to better meet the needs of driven young Singaporeans in buying their dream homes sans receiving parental help.
https://www.businesstimes.com.sg/opinion-features/executive-condo-prices-are-stretching-affordability-limits-it-time-refine-model