Four in 10 HDB owners feel ECs still relevant but pricing concerns persist: PropNex

By Nicholas Lam

/ EdgeProp Singapore |

August 6, 2024 3:32 PM SGT

Artist's Impression of Grand Lumina, a 512-unit EC project at Bukit Batok West Avenue 5 that launched earlier this year. (Image: City Developments Ltd)

PropNex released the results of its 2024 sentiment survey on Executive Condos (ECs) on August 5. The survey revealed that 44% of HDB owners agreed or strongly agreed with the statement that ECs were still a relevant housing option for middle- and upper-income families.

However, 55% of the 1,250 respondents said that current EC prices were either 'unaffordable' or 'extremely unaffordable'.

"ECs continue to be popular with homebuyers in Singapore, and new EC projects generally tend to see stronger sales at launch compared with other private condo launches owing to their more affordable pricing", says Ismail Gafoor, CEO of PropNex.

ECs were introduced in the 1990s as a hybrid of public and private homes. They cater to the "sandwiched class"— the middle- and upper-income households that earn above the household income ceiling for a build-to-order (BTO) flat but are unable to afford the price of private condos. As of 2019, the gross monthly household income ceiling for ECs is $16,000.

Affordability a concern

However, Gafoor notes that the rising prices of new EC projects may make them unaffordable for its target market.

URA Realis data tabulated by PropNex as of May 2024 showed the median absolute price of ECs reaching $1.5 million.

However, at the prevailing household income ceiling of $16,000 per month, prospective EC buyers would be able to obtain a bank financing of around $909,000, based on a mortgage servicing ratio (MSR) of 30%, an interest rate of 4% per annum (p.a.) and a 25-year loan tenure.

The MSR reflects the maximum proportion of a household's gross monthly income that can be allocated to repaying all property loans.

Therefore, even buyers earning at the income ceiling would need to produce $596,500 of cash on hand, or in combination with monies from their CPF account, to afford an EC priced in the middle of the market.

Release more EC sites

The most popular suggestion for improving EC affordability, with 58% of respondents in favour, was to increase the number of EC sites for tender in the Government Land Sales (GLS) programme.

Since 2015, only two or three EC sites have been available for tender on the GLS confirmed list. Since then, the average land rate for GLS sites has increased.

The average price of development land for ECs has grown from $284 psf per plot ratio (ppr) in 2015 to $712 psf ppr in 2023. The land rate for EC sites reached a new high last week when a consortium of developers led by Qingjian Realty bid $729 psf ppr for an EC site along Jalan Loyang Besar.

If awarded, it would beat out the previous record of $721 psf ppr set by Sim Lian Group when it bid for an EC site on Tampines Street 62 last July.

An increase in the number of EC sites would increase the supply of ECs and presumably, exert downward pressure on EC prices.

Other cooling measures

Other popular suggestions from respondents included raising the household income ceiling (48%) and increasing the MSR ratio for ECs (39%).

Of the respondents who suggested raising the gross monthly household income ceiling, 37% of the respondents suggested an increase to $20,000 per month, while another 32% suggested an increase to $18,000 per month.

With an income ceiling of $18,000 per month, an MSR of 30%, an interest rate of 4% p.a. and a 25-year loan tenure, prospective buyers would need to fork out a slightly more manageable $485,500 in cash and CPF monies to afford a median-priced EC unit.

Should the income ceiling be raised to $20,000, this would be further reduced to $370,500.

Increasing the MSR may also help buyers increase their maximum loan amount, allowing them access to more immediate capital at the cost of a higher debt obligation and a higher monthly loan repayment amount.

Raise MSR, increase income ceiling

PropNex's report surmises that while HDB flat owners generally feel that ECs remain relevant in meeting Singaporeans' housing needs, there is also an underlying sentiment that ECs are becoming less affordable. The agency has proposed three policy adjustments to combat this.

Firstly, to increase the MSR from its current cap of 30% to 40%, or even 45%, to be more in line with the current total debt servicing ratio (TSDR) framework of 55% which applies to private residential properties.

PropNex's second suggestion is to increase the income ceiling for prospective buyers to $18,000 or even $20,000 to allow more households to buy ECs.

Lastly, increasing the supply of ECs to four sites per year could bring down bid prices for EC sites, assuming developers pass on those savings to their customer base.

However, Wong Siew Ying, head of research and content at PropNex, warns that such policy changes could have knock-on effects.

"The adjustment to the monthly household income ceiling could lead to more higher income buyers entering the market and may inadvertently crowd out households who earn less," says Wong.

She adds that any increase in the MSR could incentivise developers to increase the price of EC units in line with increased available capital from bank loans.

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