Executive Condo Review – Is It A Good Investment Property?

What Is An Executive Condo (EC)

The first Executive condo (EC) was introduced by the Housing and Development Board (HDB) in 1997. However, they are more 'atas' (high-class) than HDB flats and are generally comparable to mass market suburban private condominiums. In fact, they are almost indistinguishable from the latter, but are priced more attractively.

In a nutshell, an executive condo is a public-private hybrid housing that caters to middle-income Singaporeans who do not qualify for new HDB flats as their monthly household income exceeds the eligibilty ceiling of $14,000. Yet, they are unable to afford private condominiums.

ECs are developed and sold by private developers but are subsidised by the government. In other words, they are specifically developed for the “sandwiched” class who aspires to live in a property with facilities like swimming pool, gym and clubhouse, similar to what private a condo offers.

In fact, former National Development Minister Khaw Boon Wan once likened them to buying a Lexus at the price of a (Toyota) Corolla. But there are certain ownership restrictions imposed by HDB. These include the following:

• Owners must meet the 5-year Minimum Occupancy Period (MOP) rule before they can sell
• Between the 5^th-10^th year of ownership, they can only sell to Singapore Citizens (SC) and Singapore Permanent Residents (SPR)
• ECs can only be sold to foreigners after 10 years when they become fully privatised
• Owners cannot rent out the entire unit within the 5-year MOP. They must retain at least 1 bedroom for own physical occupation and must register the rental of bedrooms with HDB within 7 days of commencement of lease.

Eligibility Criteria For Purchasing An Executive Condominium

To purchase of an executive condominium, buyers must satisfy a list of HDB eligibility criteria. These include the following:

• Must form a family nucleus that falls under either the Public, Fiancé/Fiancée, Orphans, or Joint Singles Scheme
• Must be a Singapore Citizen with one other applicant being a Singapore Citizen or Singapore Permanent Resident
• Applicants must be 21 years old, and at least 35 years old if applying under the Joint Singles Scheme
• Gross monthly household income must not exceed $16,000
• Do not own other property overseas or locally, or have not disposed of any within the last 30 months
• Have not bought a new HDB/DBSS flat or EC, or received a CPF Housing Grant before; or have only bought 1 of these properties/received 1 CPF Housing Grant thus far

Please refer to our executive condo FAQ for more information.

Housing Grants for Executive Condos

Eligible buyers of executive condos may receive up to $30,000 CPF Housing Grant depending on their monthly household income level.

Families whose monthly household income is $10,000 or less will receive the maximum $30,000 housing grant. But those who exceed $12,000 will not get any as they are deemed to be in a better financial position to purchase an executive condo. The amount of EC housing grant given is based on the level of household income indicated in the table below:

Executive Condominium Resale Levy

Do note that EC buyers are subjected to resale levies if they had previously bought a subsidised HDB property, be it a BTO flat or an executive condominium from a developer (where the land sale was launched after December 9, 2013).

Simply put, a resale levy is imposed if buyers:

• Dispose of their HDB-subsidised flat and purchase another HDB-subsidised flat, or
• Dispose of their subsidised flat and purchase an EC from a developer where the land sale took place on or after December 9, 2013

EC buyers will not need to pay a resale levy if they bought:

• A Design, Build and Sell Scheme (DBSS) flat from a developer
• An EC from a developer where the land sale occurred before December 9, 2013.
• A resale HDB apartment
• A private residential property

The amount of the resale levy payable will depend on the type of property owned, which could be as high as $55,000, as indicated in the table below:

Financing of Executive Condominiums

EC buyers are not eligible for HDB loans. That means buyers will have to take up a loan from a bank or financial institution.

Unlike an HDB loan which offers financing of up to 80% of the purchase or valuation price of the property (whichever is lower), a bank loan is capped at 75% loan-to-value (LTV).

This means buyers will have to fork out a 25% down payment from their pocket. Of this, 5% must be paid in cash, while the remaining 20% can be a combination of CPF and cash.

EC buyers are also subjected to the Mortgage Servicing Ratio (MSR) and Total Debt Servicing Ratio (TDSR) for their loan financing. For MSR, only 30% of the buyer’s monthly income can be used to service their home loan. For TDSR, their total monthly debt repayments – taking into account car loans, credit cards, study loans, hire purchase agreements, etc – cannot exceed 55% of their monthly income.

Due to the more stringent mortgage financing limitation, the prices of new executive condominiums are capped to a certain extent. This is also to ensure EC buyers do not over over-stretch their finances.

But interestingly, once ECs become partially privatised after their 5-year minimum occupation period (MOP), eligible buyers of resale ECs will be subjected to the less stringent TDSR (more on this later).

Location of Executive Condos (EC)

Nearly all executive condos are found in the suburbs, except for Bishan Loft located within 10km of the Central Business District (CBD). There are several reasons for this.

Lower Land Cost Keeps Executive Condos Affordable

As mentioned earlier, executive condos are typically aimed at the “sandwiched” class such as young graduates and professionals who could easily afford HDB flats but find private properties still out of their financial reach.

To ensure ECs are affordable, the government recognise that the land cost component needs to be low. Therefore, designated EC sites are understandably located mostly in suburban areas. Most are also located some distance from town centres.

Unsurprisingly, executive condos won't be found in prime areas due to the high land cost. Check out some of the factors to consider when purchasing a property.

Scarcity of Land

As Singapore is an island nation with only a total land area of 733.1 square kilometres (as of December 2021), this makes it the 178^th largest country in the world out of 197.

With a population size of 5.93 million, it has the second-highest population density in the world behind Monaco. Therefore, the scarcity of land is one of the main factors that contributed to Singapore being the second-most expensive housing market in the world after Hong Kong.

This is another reason for most ECs to be built in the suburbs as the lower land cost helps to keep prices affordable. But could this render owning an executive condo unattractive? We will address this issue later in this article.

Trade-Off Between Cost And Convenience

Although most ECs are located in the suburbs, this does not necessarily mean they are far from the town centre, shopping malls, and other essential amenities like food centres and wet markets.

In fact, some are located close to MRT stations, such as Tenet, Altura and Lumina Grand. Obviously, these EC developments will cost slightly more due to higher land cost that takes into account the convenience their locations offer.

For the majority of ECs that are not located near an MRT or LRT station, commuting to work or school may incur a little more time. But they may not be necessarily far from the town centre. For example, North Gaia which was launched on 25 April 2022 is only 3 bus stops from the Yishun integrated transport hub and Northpoint shopping mall.

Although most ECs are not located in the choicest locations, they are attractively priced compared to private mass-market condos. For example, recent new launches like Lentor Hills Residences, The Myst, and Lakegarden Residences have averaged around $2,100 psf. They are significantly costlier than new executive condos that were launched around $1,400 psf on average.

Although not having a train station nearby may be a trade-off, from a price point perspective, ECs offer an attractive option on your journey into property investment. Other than providing a higher standard of living than HDB flats, eligible applicants will also receive HDB's family grants (see below for eligibility). This will help them to lower the cost of home ownership.

A Property Investment Analysis: ECs Versus Private Condos

Having established a basic understanding of executive condominiums, we shall now proceed to analyse their viability as an investment option, taking into account the ownership and sale restrictions associated with them.

To answer this question, let's evaluate the average price performances of ECs versus private condos across Singapore and within districts, as follows:

1. Average price growth of ECs vs private condos in the whole of Singapore
2. Average price growth of an EC (Simei Green) vs a private condo (Eastpoint Green) in District 18 (East)
3. Average price growth of an EC (The Floravale) vs a private condo (The Mayfair) in District 22 (West)
4. Average price growth of an EC (Lilydale) vs a private condo (Yishun Emerald) in District 27 (North)

There are no executive condos in Singapore’s central region due to the significantly higher land cost.

Firstly, let's look at how executive condos have performed versus private condos island-wide. For a fairer comparison, freehold private condos have been omitted from the chart as all ECs are sold with 99-year leases.

As can be seen, executive condos (+202.23%) have outperformed private condos (167.06%) in the latest 20-year period (April 2002 to April 2022).

ECs vs Private Condos in Singapore

Price Analysis of ECs Versus Private Condos in the East, West And North

Next, we will compare the average price performances of executive condos against private condos in District 18 (East), District 22 (West) and District 27 (North) to provide a wider geographical analysis.

Eastvale EC vs Eastpoint Green (District 18)

The above chart is the average price performance of Eastvale EC and Eastpoint Green (East). Both developments were completed in 1999. Since launch, they have gained 91.71% versus 70.20% respectively.

The Floravale EC vs Parc Vista (District 22)

Next, the above chart shows that The Floravale EC and Parc Vista (West) registered an average price gain of 106.42% versus 84.63% respectively. Both developments were completed in 2000.

Lilydale EC vs Yishun Emerald (District 27)

Lastly, the Lilydale EC and Yishun Emerald (North) have registered an average price gain of 107.65% versus 77.61% respectively. They were completed in 2003 and 2002.

Analysing the above charts, executive condos showed they can be good investment properties. In fact, with the family grants received, EC owners stand to make even higher profits.

Executive Condominiums' Ownership Criteria Have Negligible Impact

Despite the imposition of a 5-year Minimum Occupation Period (MOP) and a 10-year wait for full privatisation, these restrictions appear to have a negligible impact on the investment potential of executive condominiums (ECs). One of the main reasons is the series of property cooling measures imposed by the Singaporean government.

To stamp out rampant speculation in the property market, the Singapore government has introduced a series of property cooling measures over the years, which include the Additional Buyers Stamp Duty (ABSD) and Sellers Stamp Duty (SSD). Hence, it is almost impossible to flip properties for quick profits nowadays, forcing property investors to take a longer-term view.

Financing of Resale Executive ECs

Meanwhile, one interesting aspect of executive condos is that buyers of resale ECs are subjected to the Total Debt Servicing Ratio (TDSR) ruling of 55% when applying for housing loans. This is less stringent than the Mortgage Servicing Ratio (MSR) of 30% for new EC buyers. In other words, buyers of resale ECs will be able to get more loan financing, thereby increasing the demand pool of property buyers. In turn, this will help to underpin the prices of ECs.

Development of Regional Centres Benefits Executive Condos

Since the early 1990s, the development of the Tampines Regional Centre has spurred the creation of similar hubs across Singapore. These include Jurong East, Woodlands, one-north, Seletar, and Changi.

These regional centres serve the strategic purpose of decentralizing key industries away from the congestion of the Central Business District. Simultaneously, they aim to enhance liveability by bringing employment opportunities closer to residential areas. To achieve this, the Land Transport Master Plan envisions that by 2030, 80% of households will reside within a ten-minute walk of a train station.

Executive condominiums constructed in these suburban areas have demonstrably benefited from the surrounding economic and social transformation. To support the decentralisation initiative, a comprehensive range of amenities has been developed, including shopping malls, schools, hospitals, and recreational facilities, to elevate the quality of life for residents.

Furthermore, the emergence of major employment hubs throughout Singapore has fostered a sense of self-sufficiency within these regional centres. Residents can increasingly fulfill their work, leisure, and entertainment needs locally, minimizing the necessity of commuting to the city centre. This factor, coupled with the generally lower entry price point of executive condos versus private condos, presents a compelling proposition for investors.

If you are interested in finding out about upcoming executive condos, please WhatsApp or Email me for the latest details or to arrange for a viewing.

Effects of New HDB Flat Classifications

During the National Day Rally (NDR) on 21 August 2023, Prime Minister Lee Hsien Loong unveiled changes in how HDB flats will be classified. Replacing the current classifications of mature and non-mature HDB estates will be Standard, Plus, and Prime HDB flats.

These new classifications will take effect for BTO launches in October 2024.

With the new HDB flat classifications, Plus and Prime HDB flats will have more restrictive ownership and resale conditions. These include the following:

• 10-year Minimum Occupation Period (MOP) compared to 5-year for Standard HDB flats
• Subsidy clawback when resold in the open market
• Can only sell to Singapore citizens (which will limit the pool of eligible buyers)
• Can only rent out rooms and not the whole flat

These changes in HDB flat classifications are meant to encourage home ownership. At the same time, they will help to reduce the "lottery effect" where lucky owners who can snag one of these choice HDB flats can potentially reap a windfall when they sell their flats.

As such, these ownership and resale restrictions for Plus and Prime HDB flats could limit their capital appreciation potential. Compared to executive condos, they only need to satisfy their 5-year MOP, after which they can be sold to Singaporeans and Singapore permanent residents. And after 10 years they can be sold to anyone without any profit crawl-back from the Singapore government, unlike the HDB Plus and Prime flats.

Conclusion: Executive Condo Investment Potential and Pitfalls

Like all property investments, buying a new EC is not without risks. Although the analysis above has shown their promising investment potential, not all ECs are profitable, even within the same development. Besides some of the important factors mentioned above - proximity to amenities, public transport infrastructure, and potential transformation of the area, as well as financing, ownership and sales restrictions, it is also important to consider the following:

• Market Timing: Considering current market trends and economic forecasts, when is the opportune time to invest?
• Comparative Market Analysis: Is the launched price for the EC too high vis-a-vis recent launches?
• Market Competition: Are there upcoming developments or new launches in the vicinity that could affect rental yields or resale value in the future?
• Functionality and Design: Is the layout functional and space fully optimised? Are there odd corners?
• Unit Orientation: Does the unit face a noisy road or expressway, or is it positioned close to another development that could obstruct the unit's view or compromise the privacy of the occupants?
• Exit Strategy: Like any investment, an exit strategy is vitally important. Consider your exit strategy. Remember, ECs are 99-year leasehold properties, so factor in lease decay, among other factors, to maximise potential profits.

If you have any questions about the Singapore property investment (HDB or private) or wish to receive information about upcoming EC launches, please WhatsApp me for an obligation-free chat.

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