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Latest Property Real Estate News - Published on 10/12/2013
Executive Condominiums (ECs)—being a hybrid of public and private housing, still come under the purview of the Government. As such, developers will have to strike a balance between their pricing strategies and providing affordable housing for the "sandwiched class". At the same time, developers have to be even more mindful of the income ceiling of EC buyers and EC’s affordability, more so after tweaks have been made to the EC scheme by MND.
“Affordability of ECs will be hit by the new mortgage servicing ratio (MSR) which is capped at 30% of the buyer’s gross monthly income (previously, this only applied to HDB BTO and resale flats). In addition, second time buyers who purchase an EC unit directly from a developer will also have to fork out a resale levy (the amount depends on the type of HDB property which they own). Both measures will work in tandem to equalize the playing field between public housing and ECs — and will prompt developers to adjust their land bid prices accordingly to take into account of a potential buyer’s purchasing ability,” explained Mr Mohamed Ismail, CEO of PropNex Realty.
“Subsequent EC land bids will be keenly watched to see if the new measures will bring down the number of bids per site and/or affect the quantum of the winning bids, given the strong offers for recent state tenders and the continued healthy take-up rate for ECs.”
EC upgraders’ aspirations may be dashed
With the implementation of the MSR for ECs, a 30% cap on mortgage loans will mean that a household earning $10,000 can only secure a $600,000 loan from the bank at 3.5% for a over 25-year loan tenure. However, based on the TDSR framework at 60% (assuming no other existing loans); a household earning the same gross salary can get a larger $1.2million loan.
“This is a drastic drop of 50% purchasing power and will severely dent an upgrader’s aspirations. In addition, this may also drive potential EC buyers to the mass market segment as the more ‘rational’ TDSR rule applies for mortgage loans. With the new MSR cap however, a potential buyer will be buying an EC with full condominium facilities and lifestyle, with a HDB mortgage rate,” explains Mr Mohd Ismail.
Developers with existing EC land sites hit hard
In recent months, ECs have become more attractive to both developers and buyers because of their partial exemptions from the TDSR framework. Under the new rules, financial institutions may exclude the monthly repayment of the EC buyers' existing home loans in computing the TDSR, provided these buyers sell their existing properties within six months of taking possession of the EC.
“More developers, including foreign players, are eyeing the EC segment. Given that mid- to high-end properties are slow-moving after the impact of successive rounds of cooling measures; more developers are entering the EC segment. The easy availability of credit and the low interest rate environment is also fuelling the demand. All these indicators pointed towards a more aggressive bidding scene for upcoming EC tenders.”
“In my opinion, any new policies or schemes should not be retroactive. In this case, developers are hit hard as many have already bid for EC land sites at high costs and some may have already planned out their architecture and designs etc. based on the previous regulation of a unit size of not more than 150 sqm. Imposing the MSR at 30% for existing ECs (that are currently available for sale) will make these existing units almost unreachable as the quantum loan required is much higher. The likelihood is that these developers may build smaller units so that overall quantum remains affordable for buyers to maintain affordability for buyers due to the MSR cap. This will result in a compromise of the living space.”
“Developers are already faced with rising construction costs, and in addition, Singapore's labour market continues to feel the squeeze from the tightening of foreign worker inflows. And when you take into account the effects of inflation, they will be walking on a tight rope,” concludes Mr Mohamed Ismail.
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