“Are executive condominiums really a foolproof investment if you qualify, as many reports have claimed?” At its quarterly 360° event held on July 23 in partnership with MCC Land, The Edge Property addressed this question and everything an aspiring EC buyer needs to know.
Edmund Tie & Co’s head of research Lee Nai Jia kick-started the session and spelt out the options for HDB homeowners who might be looking to upgrade. “Despite a 10% price decline from 2Q2013 to 1Q2016, based on the HDB resale price index, the current market conditions are still favourable to homeowners who have met the Minimum Occupation Period [MOP]. This is because the current prices are still about 3.3% higher than what they were five years ago,” said Lee.
Similarly, those who bought their flats directly from HDB during the build-to-order offerings in 2007 are well-positioned to upgrade, as they not only enjoyed the price appreciation from 2011 but also the implicit subsidies in the prices at which they purchased their homes. “The average cash proceeds that these HDB owners might receive from selling their flats today are estimated at $188,000. In addition, they have also built up housing equity, which adds to their equity for home purchase,” said Lee. “Those who bought their flats on the resale market five years ago will need to have more substantial cash savings if they were to upgrade their homes.”
Lee: HDB owners have built up housing equity, which adds to their equity for [upgrading]
Are ECs the real deal or just hype?
ECs are an attractive option for first-timers or HDB upgraders. Feily Sofian, head of research at The Edge Property Singapore, highlighted that ECs cater to the sandwich class, those with a household income of up to $14,000. As a result, ECs are usually priced at a 20% to 30% discount to comparable private condos. This would give homebuyers more room for price appreciation and arbitrage opportunity. “Looking at the URA price index, which rose 20% from 2010 to 2013, an EC could offer a three year head start,” said Sofian.
The most notable example is Bishan Loft EC, which was launched in 2001. It saw prices rise 157% from $422 psf at launch to $1,084 psf this year. In comparison, prices at Rafflesia Condominium appreciated 37% from $760 psf at launch in 2000 to $1,043 psf this year. Such examples are not unique to Bishan. Prices of ECs in less stellar locations have also rallied ahead of private condos.
Sofian also shared that more EC sellers reap a profit and fewer sustain losses, compared with comparable condos. “For instance, 98% of the sellers at Lilydale EC in Yishun made a profit and only 2% of sellers made a loss. A smaller percentage, 83% of the sellers at Yishun Emerald made a profit and 17% made a loss,” she noted.
On the other hand, condos that are well-located, such as those near a transit node, could offer the same capital appreciation as ECs. This is evidenced by The Jade, which is located next to the Bukit Batok MRT station and West Mall. Prices appreciated at the same pace as those at The Dew EC on Bukit Batok Street 21 from when they were launched in 2004 and 2003 respectively to 2016. Similarly, the entry price and price appreciation for well-located older condos may be on a par with ECs over the same timeframe, said Sofian.
Right entry price and location
“Recent new EC launches with a high take-up rate, such as Wandervale, The Brownstone and Treasure Crest, show that EC buyers are location- and price-sensitive,” said Sofian.
PropNex executive director Kelvin Fong agreed, saying, “Buying at the right entry price in an area set to be transformed will help add value to your property investment.” He went on to elaborate that areas such as Jurong and Woodlands that have been earmarked for transformative development have potential for property price appreciation.
“There will be about 100,000 new jobs when the transformation of Woodlands is completed. Job opportunities mean there will be a growth in population and demand for homes in the area. Woodlands will also be well connected to the city via the Thomson-East Coast Line and the North-South Corridor, and to Malaysia through the cross-border Rapid Transit System. Good connectivity means people will want to live there,” said Fong.
Options for buyers include Northwave, an EC development in Woodlands. “If we do not factor in the resale levy exemption and other forms of rebates offered, Northwave is one of the most competitively priced ECs in the market. The developer Hao Yuan Investment paid about $280 psf per plot ratio for the site in 2015, the lowest price for an EC site since 2011,” said Sofian.
Elaborating on the right entry price, Fong pointed out that each peak of the URA property price index was higher than the previous, and each trough higher than the previous as well.
Fong: Buying at the right entry price will help add value to your property investment
Home loans demystified
Aden Pang, OCBC’s head of mortgage alliance at consumer secured lending, said, “The first step for EC buyers is to assess affordability and home loan eligibility through obtaining an in-principle approval from a bank.”
Pang explained that EC buyers were subject to both the total debt servicing ratio and mortgage servicing ratio. Banks will assess a buyer’s loan application using both computations based on an interest rate of 3.5% or the prevailing interest rate if it exceeds 3.5%. TDSR caps the amount of loan to borrowers at 60% of gross monthly income less outstanding debt obligations. The MSR limits the amount of mortgage on the purchase of the new EC to 30% of gross monthly income.
Pang also explained the difference between fixed income and variable income, which includes sources such as rent, allowance and commissions. Variable income is subject to a 30% haircut in TDSR and MSR computations.
Some EC developers offer the deferred payment scheme, which allows buyers to defer their 80% loan repayment until the development is ready for occupation. “That means when they receive Notice of Vacant Possession or Temporary Occupation Permit,” said Pang. Homeowners still servicing their HDB loan are not required to make loan repayment on their new EC purchase until TOP.
Pang: The first step for EC buyers is to assess affordability and home loan eligibility