How true are the reports claiming that executive condominiums are a foolproof investments for those that qualify? Industry insiders hope to address this and other questions aspiring EC buyers want to know during the quarterly 360° event.
Lee Nai Jia, Head of Research of Edmund Tie & Co, initiated the session with a rundown of the options available to HDB homeowners who are thinking of an upgrade. “According to HDB resale price index, even though with a 10% price decline from 2Q2013 to 1Q2016, based on the current market conditions, homeowners whom have met the Minimum Occupation Period (MOP) are still in favour” said Lee. He added that this is due to the current prices are still about 3.3% higher than what they were five years ago.
Those made a direct purchase from the HDB in 2007 during their build-to-order offers are now in the position to upgrade. These homeowners are now enjoying price appreciation since 2011 as well as the subsidies on the prices at which their homes were bought. “If those HDB owners were to sell their units today, the average cash proceeds could be estimated to be around $188,000”, Lee said. “Adding to that, they could have built up housing equity, which adds to their equity for home purchase. A point to note is that those whom have bought their flats five years ago in the resale market, they will need to have more substantial cash savings if they wished to upgrade their homes.”
Are ECs for real or are they all hype?
Executive condominiums are generally presented as fantastic options for HDB upgraders and first-time buyers. The Edge Property Singapore’s Head of Research Feily Sofian points to ECs’ positioning as ideal for those in the sandwich class or those whose household income is below $14,000. Due to this, ECs are priced at 20% to 30% lower than similar private condos. This gives homebuyers a bigger margin in terms of price appreciation as well as arbitrage opportunity. “Looking at the URA price index, which rose 20% from 2010 to 2013, an EC could offer a three year head start,” Sofian added.
Bishan Loft EC, launched in 2001, is a good example of this. The property experienced prices rise as much as 157%, from its launch price of $422 to this year’s $1,084 psf. In contrast, Rafflesia Condominium appreciated at a maximum of 37% – price this year is $1,043 psf from its launch price of $760 psf. This scenario is not exclusive to Bishan as even ECs located in locations that are not as sough after have experienced better price appreciation compared to private condos.
Sofian shared as well that with EC sellers, there are more that have posted profits than those with losses when compared to their counterparts with condos. “For example, majority (98%) of the sellers at Lilydale EC in Yishun made a profit and only a handful ( 2%) of sellers made a loss,” she pointed out. “Relatively, sellers at Yishun Emerald (83%) made a profit and 17% of them made a loss.”
In order for condos to exhibit a similar capital appreciation, they have to be near a transportation facility or other favourable locations. An example is The Jade, which is next to West Mall and the Bukit Batok MRT station and launched in 2004. Its prices appreciated at a similar rate as that of The Dew EC, located in Bukit Batok Street 21, which launched in 2003. According to Sofian, older condos in good locations are at par with ECs in terms of entry price and price appreciation over the same period of time.
Ideal location and entry price
This is echoed by Kelvin Fong, PropNex executive director. “Set foot in an area to be transformed and getting in to buy at a right entry price will help to add value in your property investment,” says Mr Fong. He added that in areas that have been identified for transformative development – such as Jurong and Woodlands – there is a huge potential for price appreciation including properties.
“Upon transformation of Woodlands is completed, estimated 100,000 new jobs will be created” declared Fong. “When there are job opportunities, there will be a potential growth in population. These will cause demand for housing needs in that area. Through the Thomson-East Coast Line, Woodlands will be well-connected to the city via the North-South Corridor. For those travelling to Malaysia, it can be done through the cross-border Rapid Transit System. Naturally people will want to live there with good transportation system,” he added.
Northwave EC, an EC development situated in Woodlands is included in the options available to buyers. “Apart from the resale levy that the buyers will need to take noted, Northwave EC is still one of the best priced ECs in the recent market,” Sofian declared. She added that, “For $280 psf per plot ratio that the developer Hao Yuan Investment has paid in 2015 – this is one of the lowest prices for an EC site since 2011.”
In an explanation on the ideal entry price, Fong pointed to the fact that every peak of the URA property price index was higher than the last one. Every trough was higher than the last one as well.
Home Loans Simplified
According to Aden Pang, Head of Mortgage Alliance at Consumer Secured Lending in OCBC, the initial step that EC buyers should do is to assess affordability of the property and their eligibility for a home loan. They can do this by going to their bank and getting an in-principle approval.
EC buyers are subject to both the mortgage servicing ratio (MSR) and the total debt servicing ratio (TDSR). Banks assess a buyer’s application for a loan using both computations. They will base this on the prevailing interest rate or 3.5%, whichever is higher. The MSR limits the mortgage amount for the purchase of the EC at 30% of one’s gross monthly income. The TDSR imposes a cap on the loan amount at 60% of their gross monthly income minus any outstanding debts.
Pang outlines the difference between variable income and fixed income as well. Income sources included rent, commissions, and allowances. One’s variable income is subjected to a 30% trim in computing the MSR and TDSR.
A deferred payment scheme is offered by some EC developers. This payment scheme allows buyers to defer 80% of their loan repayment until such time when the unit is ready to be occupied. “Which means when the project received its Temporary Occupation Permit (TOP),” explained Pang. Home owners who are still in the process of servicing their HDB loan do not necessarily required to do loan repayments for their newly purchased EC until the TOP.