Executive Condo, often known as EC, are a combination of public housing and private condo. This category of property, such as the DBSS flats and maisonettes of the past, has historically done well. The explanation is simple: it’s an incentive to purchase private property while also obtaining incentives from the government.
In comparison, ECs also provide the same variety of amenities that private condominiums provide, just at a fraction of the size.
Remember this: it costs from $500,000 and $600,000 for a standard 5-room HDB flat. On the other side, the $1.2 million threshold will quickly be reached by mass-market suburban condos.
HDB flat owners already have a $12,000 per month salary limit. Find a household that earns a little more than that, say $14,000 a month (ECs sales ceiling). Between an EC and a residential condo, they have to pick.
The average repayment will be $3,177 a month if this family decided to acquire a $1.2 million private condo, with a 25-year debt of about two percent interest per annum *.
They may, however, purchase an EC with equivalent amenities, at around $800,000. They’re staring at a gross selling price of only $770,000 after minus off the CPF housing grants of $30,000.
The family ‘s annual repayments are only $2,611 a month using the same 25-year debt at two percent per annum. An additional saving of $500 a month will make a huge difference, especially for newlyweds who have their first child. And this comes without any lack of efficiency, as complete suite condos designed by private developers are executive condominiums.
Narrowing Gap between Executive Condo and private resale condo
Initially, complaints were raised that an EC’s resale value would be smaller than that of private condos. Over the years, though, the distance has decreased. The average price difference between ECs and private condos following the Minimum Occupancy Duration (MOP) is about nine percent at the time of publishing. The difference narrows to about five per cent following privatisation.
Moreover, provided that ECs are acquired with government incentives and at typically lower rates than neighboring private assets, there is substantial potential for the appreciation of resources.
Disadvantages of Executive Condo irrelevant to most purchasers
Most Singaporeans purchase their condo, not rent it out or flip it for profit, to reside in. As such, for them, the disadvantages of an EC are irrelevant.
It doesn’t apply to an owner-occupier whether they can’t sell or rent the unit out within the Minimum Occupancy Duration (MOP) of five years, as they’re going to remain in it anyway. The 10-year delay for privatisation is equally meaningless to most owner-occupiers; it is possible that the 10-year duration will already be up by the time they are able to update or transfer again.
Again, this allows ECs, without discernible disadvantages, the equivalent of cheaper and subsidized private land.
Interest Rate Hikes from private bank loan?
A widespread question about ECs prior to 2016 was how homebuyers had to apply for private bank loan (there were no HDB loans for ECs). This has contributed to fears that an interest rate increase will make mortgages less available.
True enough, rates increased both in 2016 and 2017, and the low-interest environment that lasted since 2008 is most likely to stop. We’re not going to go into depth here, but it’s enough to suggest you might see home loan prices as low as 1.4% per annum in 2008/9, although they’ve now risen to around 1.8%.
The industry has responded to it, though. A transition to board rates in which mortgages are not bound to the growing Singapore Interbank Offered Rate (SIBOR) has been led by banks. However, most notably, we’ve gone through 2 interest rate hikes, and after all, the economy appears to have concluded that they are tolerable.
The usage of bank loans is also less off-putting than it was before for EC buyers. Though we could point out that EC purchasers have to fork out at least five per cent of the property price in cash owing to the requirement for bank loans.
Upcoming Executive Condo
One big gain for any Singaporeans who own an executive condominium like Provence Residence is that upon purchasing, they would benefit from the discounted rates. Because housing is subsidized by the nation, rates in the developing Sembawang area can be assumed to be just 3⁄4 of the other privately-sold condos.
The Provence Residence EC offers a great investment opportunity before the area is completely established, as Canberra and Sembawang begin their growth to be a center for family life, whilst providing world class facilities that Singaporeans love.