Those looking to buy a new home from the government are faced with 3 choices – BTO, resale HDB or an Executive Condominium. In the last few years, we’ve seen HDB resale prices skyrocketed to hit the million-dollar mark, which drove potential buyers to ask the question: will buying a new executive condo be more worthwhile compared to buying a resale HDB flat?
For many Singaporeans, executive condominiums (ECs) offer the best of both worlds: a living space similar to that of a private condominium, complete with lifestyle amenities like swimming pools and gymnasiums, as well as access to some of the subsidies offered by the government.
This makes them an ideal choice for the “sandwich class’ – those who earn too much to afford a HDB flat but find it difficult to afford a private condo. This group are usually those who are in their early 30s, just gotten married and not willing to wait years for the completion of a BTO project, find resale HDB too expensive for what they are and are drawn to the lifestyle provided by an EC.
In fact, many property agents here market EC as the “no-brainer” choice, since you save on renovation costs compared to buying a resale HDB with a lower land-lease left.
But ECs are cheaper than private condominiums for good reasons too – the eligibility criteria are fairly restricted. You’d need to fulfil HDB’s family nucleus criteria, stay within the 30% mortgage servicing ratio(MSR) and you can only sell it in the open market after 10 years.
So before you jump on the bandwagon to book for the upcoming new launch EC Hundred Palms, here’s what you need to consider before purchasing an EC:
1. Eligibility and Affordability
Check that you are eligible to buy an EC from the HDB website. Since you are only allowed to take up a bank loan for an EC Purchase, you’d need to ensure you have enough money to make the 20% downpayment – 5% by cash and 15% by cash and/or CPF.
For instance, if the unit costs you $750,000, you’d need to put up cash upfront amounting to $37,500, and have $112,500 in CPF/cash.
On top of that, you need to budget for stamp fees, legal fees and other miscellaneous payments as well. Stamp fees for this unit will be at about $17,100 and legal fees are around $2,500.
In this case, you’d need about $57,100 in cash.
Compared to a resale HDB, you’d need less cash if you are taking a HDB loan since you can use your CPF for the entire 10% downpayment of $75,000. However, you need to take into consideration that you’ll probably need to do major renovations for your flat, and you probably need cash for that. In this sense, you might actually fork out the same amount of upfront cash as compared to buying a new EC which requires minimal renovations. If you need further consultation about your loan quantum and whether you can afford to purchase a property, feel free to contact us here.
2. How long do you plan to stay there?
Many Singaporeans continue to think of their property as assets which are “sure” to appreciate in the future. This is not always true, especially in the last decade. Gone are the days where you can buy a HDB(either BTO or resale) and be assured of making 6-figure gains when you sell them. In fact, what you can be sure is that the government will always step in to ensure these public housing remains affordable.
This is a reason why those considering between a resale HDB and new EC will have to be extra careful. Typically, those who are deciding between these 2 types of housing option will consider a resale HDB that’s around 30-40 years old in a mature estate. This gives them convenience to travel to-and-fro the CBD and offers good rental yield should the owners decide to rent out the rooms/units later on.
However, when we purchase a HDB, we are actually “renting” since the land lease expires on the 99th year. Following this logic, your home will have zero value when the land lease expires. This also means that you may find it hard to sell off your HDB when it hits beyond a certain year, especially when there are also restrictions on buyers using their CPF to pay for a HDB beyond 40 years old.
Compare this to a new EC which will enjoy privatised status after 10 years, you might actually have more chance of making a tidy profit compared to an old HDB. Which it is obviously never a sure-win bet, research has shown that nearly all EC transactions in 2014 and 2015 were profitable at an average of 65% profit margin.
Many EC-buyers are attracted by the lifestyle it can provide, which is similar to that of a private condominium. However, the main downside of living in an EC is that they are often located in areas which are pretty far off from the central of Singapore, and you may lack transport connectivity. If convenience is a huge concern for you, you might prefer to buy a resale HDB nearer to the central region.
Do note that the amenities provided in an EC is not for free as well! You’d need to pay a maintenance fee, much like a private condominium and typically costs around $200 per month.
A property purchase is a big decision, and it’s hard to tell if you will turn a profit. In fact, it is not advisable to think of a public housing as an investment property. It’d probably be better to regard it as a property for home stay and treat it as a bonus should it turn a profit. In terms of property investment, private property prices have been proven to have a better capital appreciation.
If you are looking for a home loan, remember to check out our home loan comparison page for the best quotes!