Within the past 1 year, we have seen 3 executive condominium launches. Piermont Grand in July 2019, Parc Canberra in January 2020 and OLA in February 2020 and there will be another one named Parc Central in Tampines launching as well. When the 3 executive condominiums were launched, there were a lot of controversial comments within consumers. There were many who still rushed to buy the units and there were also many on the other side of the fence, saying that executive condominiums are no longer worth it as they are no longer as ‘well-priced’ as before. So. they are better off buying a private condominium. So, who is correct and who is wrong??? Let’s find out.
First of all, let’s have a quick look at the requirements for the purchase of the 2 types of properties. For private condominiums, it is pretty straightforward. There are really no ownership requirements nor income restrictions and anyone can purchase it. The only issue will be the Additional Buyers Stamp Duty, which varies according to the citizenship or resident status and also the number of properties owned. So, this will be the stumbling block that will affect the buying sentiments rather than ownership requirements. For brand new executive condominiums from Developers, then there will be more requirements. First of all, you will need to have at least one Singapore Citizen and also another applicant who is a Singapore Citizen or Singapore Permanent Resident (SPR). The applicants also need to form a family nucleus under the following schemes, Public Scheme, Fiancé/Fiancée Scheme, Orphans Scheme and also the Joint Singles Scheme. Do note that for purchases under the Joint Singles Scheme, all singles must be Singapore Citizens and they need to be above 35 years of age. There is also a household income ceiling of $16,000 per month. This was raised from $14,000 recently from this point of writing, executive condominiums also come with a 5 years Minimum Occupancy Period and owners are not allowed to own any other private residential properties both overseas or locally and the buyers must also have not disposed of any private residential properties within 30 months from the application date.
Tracking back to past executive condominium prices at their time of launch, the prices have indeed increased by quite a fair bit. One of our clients bought an executive condominium many years ago at less than $600,000 and it was a 4 bedroom unit at slightly above 1,500 square feet in size. If your jaw dropped, do push it back and continue reading. And no, there were no typo errors. Fast forward to today, such prices can only exist in fairy tales and no longer in reality. Prices trends above $1,000 per square foot nowadays and we still see people flocking to the show galleries. Now why is this so? The reason is because Singapore’s real estate prices have risen over the years and that is also why the new executive condominiums cannot remain at history prices. What we cannot shun away from, is that the prices of private condominiums have also risen steadily over the years. So, when we do a comparison between similar executive condominiums and private condominiums today, we can still see that the former is still around 30% more affordable. Executive condominiums are also considered as subsidised housing and that is why there are so many requirements and restrictions and with this factor in place, it will forever be more affordable as compared to private condominiums and this means show galleries will still continue to be packed.
Of course, our purchase decision cannot be based on just the pricing alone. If today our monthly household income exceeds $16,000 or if we cannot fulfill the family nucleus requirements, then we do not have much of a choice. Private condominium is the way to go. There is also one thing that many often neglect and that is affordability. And what we mean by affordability is not about how much we earn a month but how much can we loan under the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) framework. To learn more about the differences of MSR and TDSR, do read up on one of the articles that we have written - <Dissecting the Differences Between TDSR and MSR>. In short TDSR allows us to use up to 60% of our income to service all loans and MSR allows us to use up to 30% of our income to pay for housing instalments for HDBs and brand-new ECs. For someone who has no other loan obligations, this makes a whole lot of difference. Let me draw up an example for you.
Family A
Household Income - $16,000
Loan Tenure - 25 years
Buying a private condominium under the TDSR framework
Based on 3.5% stress test interest rate and no other loan obligations
Loan amount - Approximately $1,917,608
Max Property Purchase (not factoring Cash & CPF available) - $2,556,811
Family B
Household Income - $16,000
Loan Tenure - 25 years
Buying an executive condominium under the MSR framework
Based on 3.5% stress test interest rate and no other loan obligations
Loan amount - Approximately $958,904
Max Property Purchase (not factoring Cash & CPF available) - $1,278,405
Looking at the example above, you will realise that there is a huge difference in the loan amount. Of course the loan amount for Family A will also drop if they have other loan obligations but we can see that the maximum potential of the loan amount can be doubled and Family A can actually afford to buy a much bigger and better private property at a more prime location as compared to buying an executive condominium.
Actually, in terms of facilities and finishings of the project, there really isn’t any difference between the two, not including those more high-end and much more expensive private condominiums in the equation. In fact, we have seen executive condominiums having better facilities and finishings over some private condominiums and there really isn’t compromise over the lifestyle at all. Today, if you are someone who falls within the eligibility and you are buying mainly for own stay with your family and you have no qualms about staying in the house for 5-10 years, then you really should consider an executive condominium as it will always stay as a value-buy over private condominiums in terms of dollars and cents. But if you have more investment blood in your body and you belong to those who wants to sell off your property as long as opportunities permits with good capital returns, then a private condominium is more suitable for you. One thing to note though will be rental returns, if we want to rent out our executive condominium the moment, we get the keys, sorry that is an absolute no-go, as we have mentioned earlier that all executive condominium owners will need to fulfill a MOP of 5 years. But if we choose to rent out our executive condominium after fulfilling the MOP, then we will be enjoying a much higher rental yield as our purchase price will be lower as compared to a similar private condominium. That is another point worth pondering about.
Schools play a big part in the purchasing decisions of parents as well. There are some famous schools where parents would really yearn to have their kids studying in, but those schools may not be near to any present executive condominium launches or upcoming executive condominium sites. And for some districts or towns, the property prices may also be higher due to the closer proximity to branded schools and hence a higher budget for the house becomes an essential requirement for the house purchase. As such, private condominiums may be a better choice. Personally, we have seen and heard buyers who purchased properties based on proximity to schools but end up their kids did not manage to enroll into the school of their choice. If these parents had bought a private condominium, then the parents still have a choice to rent out the unit for rental income or even just selling it off, disregarding the fact whether are there any profits or losses. On the contrary, if the parents had bought an executive condominium instead, then they will have to continue staying in the house for a minimum of 5 years without the option to sell or lease out the property.
To end it off, if we are comparing executive condominiums and similar private condominiums in a similar location, executive condominiums will definitely be more worth it in terms of dollars and cents. But like mentioned, prices cannot and will not be the only consideration factor when we need to make a choice. We hope we have managed to help you to pick a side if you are someone sitting on the fence. What we have shared above are not exhaustive and there may still be other factors that you are considering. If you are still having difficulties choosing which one is more suitable for you, do feel free to reach out to us for a chat and we will be more than happy to advise you further. <Designed by pressfoto / Freepik>
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