ECs set to ride rise in income ceiling?
By Lin Zhiqin & Esther Hoon
/ The Edge Property |
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Prime Minister Lee Hsien Loong announced in his National Day Rally speech on Sunday that the income ceiling to buy new HDB Build-to-Order flats will be raised from $10,000 to $12,000 and the income ceiling for new executive condominiums (ECs) will be raised from $12,000 to $14,000. Under the new policy that came into effect on Aug 24, another 86,000 Singaporean households will become eligible to buy BTO flats and another 65,000 households will be able to buy new ECs (see table).
Source: Singstat, The Edge Property
If the new BTO-eligible households show a strong preference for new flats instead of resale units, the sluggish HDB resale market could slump even further. However, the actual impact will likely be muted as Singaporeans who have bought two BTO flats or utilised CPF grants for two resale flats, or a combination of the two, will no longer be eligible for further BTO applications. The further tapering of BTO supply from around 22,500 units last year to 15,000 this year, and a probable continued reduction in supply next year will drive demand for resale flats.
With more households becoming eligible, applicants’ chances of securing a BTO flat will likely be lowered owing to heightened competition from the expanded pool of buyers. While the more affluent can afford to miss the opportunity, the lower-income applicants with fewer housing options could be disadvantaged.
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The number of households eligible to buy new ECs will increase by about 65,000, but ECs could also potentially lose 86,000 households to the BTO market. The target market for ECs could therefore shrink by about 24%, or 21,000 households. The actual impact will depend on how much buyer demand will shift from ECs to BTO flats and from condos to ECs. If the government reduces the supply of BTO flats, the exodus of buyers from the EC market to BTO flats would be limited.
Meanwhile, the price advantage of ECs could ease demand for private condos. EC prices have softened as seen in examples such as Sol Acres, which saw its first phase of 707 units launched at an average $780 psf, below analysts’ estimates of above $800 psf. There is still demand for ECs if buyers find a valid value proposition, as shown by the 247 units at Sol Acres and 185 units at The Brownstone sold over their respective launch weekends.
Average prices at recent EC launches such as Bellewaters, The Vales and The Brownstone have been 20% to 30% lower than the new condos nearby. Additionally, units at ECs tend to be bigger than condo units of the same approximate price. For instance, 1,300 sq ft units at The Brownstone in Sembawang and at Bellewaters and The Vales in Sengkang have been sold at about $1 million, but buyers at the surrounding new condos paid a similar amount for units of between 900 and 1,100 sq ft. New ECs are also trading at lower or similar prices compared with older resale condos in the vicinity.
The only drawback for ECs is their resale and leasing restrictions as well as the continued enforcement of the 30% Mortgage Servicing Ratio. For instance, a household with income of $14,000 can purchase a private home of up to $2.3 million, compared with an EC at only $1.17 million, assuming the borrower maximises the 60% Total Debt Servicing Ratio. ECs will likely appeal to more financially prudent buyers who prefer to keep their MSR low, or those who prefer to pay off their mortgage over a shorter number of years at a higher MSR.
With the launched but unsold EC inventory at 2,898 based on URA’s July developer sales data and an estimated 4,888 (excluding Sol Acres’ 707 units) unlaunched units in the pipeline, the higher income ceiling will likely prove to be a boon to EC developers only if they continue to offer good value to buyers. The rise in demand will probably not lead to higher prices for new ECs in the short term. In turn, developers of mass-market private residences will probably be pressured to offer more affordable prices to shore up demand in the face of stiff competition from the ECs.
This article appeared in The Edge Property Pullout of Issue 692 (August 31) of The Edge Singapore.
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Ask Buddy
Past HDB sale transactions
Past HDB rental transactions
What is the HDB loan rate?
Compare price trend of HDB vs Condo vs Landed
HDB loan vs Bank loan
Past HDB sale transactions
Past HDB rental transactions
What is the HDB loan rate?
Compare price trend of HDB vs Condo vs Landed
HDB loan vs Bank loan
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