Impacts on New EC Measures 9 Dec 2013

The Government will implement three measures for Executive Condominium (EC) developments to bring the terms for ECs closer to that for public housing, and help support a stable and sustainable EC market. This follows a review by MND on the EC Housing Scheme, taking into account feedback from the Our Singapore Conversation on Housing. 

I. Reduce EC Cancellation Fees

2   First, we will reduce the cancellation fees for ECs from 20% to 5% of the purchase price. This will relieve the financial burden of buyers who have to cancel their EC bookings after signing the Sale & Purchase Agreement. The new cancellation fee will be applied to EC land sales which are launched on or after 9 Dec 2013, including those where the tenders have not closed.

3   The cancellation fee for ECs is currently set at 20% of the purchase price, similar to those for private housing. However, unlike buyers of private housing, buyers of EC units cannot sub-sell their units if they cannot complete their purchase, and have to pay the cancellation fee. This has especially imposed significant financial burden on young couples who subsequently are not able to proceed with their marriage and hence the EC purchase.

4   We will therefore align the cancellation fees for EC units with that for HDB Build-to-Order (BTO) flats, and reduce them from 20% to 5% of the purchase price.

Implications:  

Developers will then be open to more risk of cancellation cases. 20% based on a 1 Mil property is $200K vs 5% which is $50K.

 II. Resale Levy for Second-Timer Applicants

5   Second, we will now require second-timer applicants who buy EC units directly from property developers to pay a resale levy, similar to second-timer applicants who buy BTO flats. The new requirement will be applied to EC land sales which are launched on or after 9 Dec 2013, including those where the tenders have not closed.

6   Currently, second-timer applicants who buy EC units directly from property developers benefit from the lower EC prices arising from the initial eligibility and ownership restrictions imposed on EC purchases. However, they do not need to pay a resale levy. The alignment of treatment with second-timer applicants who buy BTO flats will ensure greater parity. 

Implications: 

Firstly, existing EC projects will probably move off the shelf faster as they are still not being impact by Resale Levy for 2nd timers. Borderline 2nd timers who might be waiting for 2014 projects might make up their mind to go for current projects to escape Resale Levy. 

Secondly, 2nd timers might seriously consider BTOs as versus ECs in the future as main perk of no Resale Levy has been abolished.

III. Revision of Mortgage Loan Terms

7   Third, the Monetary Authority of Singapore (MAS) will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions for EC units bought directly from property developers at 30% of a borrower’s gross monthly income. This is in line with earlier measures introduced by the HDB and MAS to encourage financial prudence among buyers of public housing. It discourages EC buyers from over-stretching their finances and supports an affordable and sustainable EC market.

8   The 30% MSR cap will apply to EC purchases where the Option to Purchase is granted on or after 10 Dec 2013.

Implications: 

Firstly, as EC income cap is still set at $12K per month, it means that buyers will be limited to using 30% of their income for servicing monthly mortgage. That will drastically bring down the quantum of loan that a buyer can get to purchase EC. In the long run if the income cap is still not lifted higher and escalating land prices, we could be seeing compact or even mickey mouse size EC units being built in order for the developers to bring down the quantum of their project.

Secondly, as more local buyers hit the wall against the MSR cap, they might consider buying another low quantum small private condo for investment purposes. This is because private condo are not subjected to MSR and when the buyers have cleared their existing HDB loan, they still can get up to potential 80% loan after being subjected to TDSR. In short, buyers can get a much higher loan quantum for a private condo as compared to EC if they don't have any existing housing loan.

Existing ECs:
Sea Horizons @ Pasir Ris
Skypark Residences @ Sembawang
Waterwoods @ Punggol

Upcoming ECs for 2014!
New EC @ Yuan Ching (Jurong)