Why ECs Are a Good Investment Now

Copen Grand EC. Image courtesy of CDL Development and MCL Land.

12 min read • by Home Central

Why ECs Are a Good Investment Now

Just last month, Tengah Town’s first-ever executive condominium project, Copen Grand, reached a whopping 72.8% sales on its launch day – becoming one of the best-selling EC projects since Sengkang’s Rivercove Residences in 2018.

Out of a total of 639 units available, 465 units were sold at an average launch price of $1,300psf. 

Despite the latest wave of property cooling measures coming into effect on 30 September 2022, Copen Grand’s success indicates a robust EC market that has not slowed in demand. Following similar profit trends from the previous years, it is little wonder that the popularity of ECs continue to surge. 

Placed against the backdrop of Singapore’s current property climate, we delve deeper into why ECs may be a better investment than resale HDBs.

Will the New Cooling Measures Affect My EC Buy?

To understand the hike in EC popularity, we turn to the latest cooling measures that were recently put into place to ensure prudent loan applications and moderate demand in the HDB resale market amidst rising interest rates.

For eligible first time buyers, the loan-to-value (LTV) limit has been further reduced from 85% to 80% since 2021. That is to say that the amount of loan HDB grants you is lesser, resulting in a higher down payment.

If your HDB flat costs $600,000, you would previously be able to borrow a maximum of $510,000 (85%). With the new cooling measures, the maximum loan quantum limit has been reduced to $480,000 (80%) – a difference of $30,000.

The loan amount you will be eligible for is further determined by an interest floor rate of 3% per annum, or 0.1% above the CPF Ordinary Account interest rate – with the higher of the two being put into effect. This affects your Mortgage Servicing Ratio (MSR), despite actual interest rates remaining at 2.6%.

Take for example a loan of $480,000 from HDB that you have taken for a duration of 25 years. Based on a 2.6% interest rate, monthly repayments equate to $2,177.61 which translates to a household income of $7,259. With an increased interest rate of 3% taken into consideration, monthly repayments are now $2,276.21, and the total household income needed to meet that repayment is $7,587. In sum, you’ll need a higher household income to take out the same loan amount as compared to before.

Image chart: Increase in Interest Rates Affecting the Mortgage Servicing Ratio (MSR) for HDB Loans.

And while the LTV limit remains unchanged at 75% when taking out loans from private financial institutes, the medium-term interest rate has been raised by 0.5% (3.5% to 4%) for residential properties. Coupled with the new total debt servicing ratio (TDSR) of 55%, here’s how payments will differ.

Let’s work out another simple case study. Imagine a household with a total income of $11,500 with non-property loan obligations of $1,000. With a 55% TDSR, the total amount you can set aside for monthly repayments is $6,325 a month.

For a private residential property purchase of $1.5mil, the total loan amount of 25% equates to $1.125mil for a maximum tenure of 30 years. Previously, with an interest of 3.5%, monthly mortgage repayments total up to $5,051.75. Subtracting the household’s other loan obligations from their TDSR, they pass the eligibility criteria for this loan. After raising the interest rate floor to 4%, however, the monthly mortgage repayments now amount to $5,370.92, which falls just a tad short from the 55% TDSR needed for them to qualify for the exact same loan amount.

Image chart: Increase in Interest Rates Affecting the Total Debt Servicing Ratio (TDSR) for Loans from Private Financial Institutes.

Furthermore, the 6-month wait-out period was increased to 15 months for private homeowners looking to purchase a non-subsidised HDB resale flat. 

Though these measures do not result in an increase of costs for properties, it does re-review the loan amount homebuyers will be eligible for, in which larger proportions of housing debts will need to be paid for with cash or CPF savings.

As ECs are not eligible for HDB loans, home buyers will mainly be affected by the increase in medium-term interest rates from financial institutes. But Copen Grand’s recent sales have proven that said buyers have the financial means to make up for it. In addition, ECs offer qualifying homebuyers the option of a deferred payment scheme, which helps them manoeuvre through soaring interest rates and granting them leeway to grow their savings before making payment during key collection. Second-time buyers need not worry about the new wait-out period affecting only HDB resale purchases, and are also able to sell their current homes only after they receive the keys to their new EC purchase.

Hence, the resale HDB market receives the hardest hit from recent cooling measures, and while the interest rate floor has raised to review the eligibility for an EC, buyers who have the financial means to either purchase a resale flat or EC tend to choose the latter over the former due to better capital appreciation for their investment.

The Booming EC Market

Just in October 2022, OrangeTee & Tie released its latest Market Watcher Series which shows that 99.9% (4,623) of the EC units sold in the resale market from between 2007 and end-August 2022 have yielded an average profit of $300,000 each. The aforementioned units were sold within 10 years. 

All 262 units sold after their 10-year holding period managed to yield profit, with 251 units making at least $200,000, and 52 units profiting at least $500,000, with an average gross profit of $383,630.

Data courtesy of URA and OrangeTee & Tie Research & Analytics.

Larger ECs also tend to fetch higher profits. It was recorded that 2,717 units between the sizes of 800sqft and less than 1,200sqft yielded an average of $268,493 each; 1,112 units between 1,200sqft and less than 1,600sqft profited at an average of $362,997 each; while 170 units of at least a size of 1,600sqft gained an average profit of $455,207 each.

The highest gross profit recorded was $1.38million for a 3,864sqft unit from CityLife@Tampines sold within 10 years. The highest for an EC sold after 10 years was $785,002 for a unit at The Quintet.

Data courtesy of URA and OrangeTee & Tie Research & Analytics.

In recent years, demand for an EC far surpasses that of supply as HDB upgraders and investors turn to ECs instead for the price affordability and high capital appreciation as compared to resale flats. Simply put, it’s a sought-after property type for many that few own. It’s unlikely that its popularity will slow down anytime soon, but rather, we even expect it to increase in volume.

Are ECs a Better Investment Than Resale HDBs?

The new cooling measures have undoubtedly put a strain on the HDB resale market, with many applicants vying for a home amidst spiking interest rates. For those who have the financial capability of purchasing either a resale flat or an EC would see better investment potential in the latter.

Tenet EC. Image courtesy of Qingjian Realty Group and Santarli Construction.

ECs offer a lower entry price point as compared to other new condominium launches while having the same spectrum of facilities pricier private residential estates offer, and promises high potential growth after the MOP period that are similar to Built-To-Order (BTO) flats – higher than what a resale flat may offer.

Homebuyers do not need to stress over their finances, as EC purchases come with a deferred payment scheme and up to $30,000 of CPF grants. Second-timers are still entitled to a 75% loan and do not need to fork out a 17% payment of Additional Buyer Stamp Duty (ABSD) if they still have ownership of their current flat.

Profitability and popularity are two of the hugest boons for ECs. That being said, the outlook for new EC launches stands strong, which gives developers a boost of confidence when bidding for developmental plots. 

The last EC sales launch for the year, Tenet @ Tampines, is slated for 12 November, and if that is a project you have been eyeing, you can reach out to us via WhatsApp at +65 9799 7955 for an in-depth analysis of your financial portfolio.

Visit Tenet EC’s official website here: https://tenetofficial-sg.com/

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