How High Can EC Prices Go?

Last week I discussed about the high return rate among Executive Condominium (EC) buyers. Today I shall look at how high can an EC unit on a per sq ft (psf) basis be priced.

The latest EC project to open for e-applications or e-Apps is Lake Life at Taman Jurong. On 6 Oct 2014, it was reported that 1,200 applications was submitted for the 546-unit project. The strong turnout was no doubt aided by the Government plans for the Jurong Lake district.

But what was eye-popping was the psf quoted for the EC project. At $880-$890 psf, this will be the most expensive EC project to-date.

Type	Size (sf)	Quoted Price Range (psf)	Estimated Price (Top Range)
5 bedroom	1,604-1,711	$880-$890	$1.42-$1.52 million
4 bedroom	1,195-1,701	$880-$890	$1.06-$1.51 million
3 bedroom	1,023-1,711	$880-$890	$0.91-$1.52 million
2 bedroom	743-969	$880-$890	$0.66-$0.86 million

Source: Lake Life e-brochure, news reports, Real Property Advisory Singapore


Can a family with an income ceiling of $12,000/mth afford the EC?

For a couple age 30 years, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	30 years	30 years	30 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$1.04 million	$869,000	$695,000
Purchase Price (80% loan)	$1.30 million	$1.09 million	$869,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf	$1,271	$1,065	$849

Source: Real Property Advisory Singapore


For a HDB upgrader, with more equity on hand, their affordability would look like this:

Household Income	$12,000/mth	$10,000/mth	$8,000/mth
Mortgage Service Ratio (30%)	$3,600	$3,000	$2,400
Total Debt Servicing Ratio (60%)	Pass	Pass	Pass
Loan Tenure	20 years	20 years	20 years
Interest	1.50%	1.50%	1.50%
Loan Amount	$745,000	$620,000	$497,000
Purchase Price (70% loan)	$1.06 million	$886,000	$710,000
Purchase Price (60% loan)	$1.24 million	$1.03 million	$828,000
Size of 3 bedroom	1,023 sf	1,023 sf	1,023 sf
Maximum psf (60% loan)	$1,212	$1,007	$809

Source: Real Property Advisory Singapore


Looking at the numbers above, theoretically the developer can price their project at above $1,000 psf if there is no mortgage service ratio (MSR) and maximum loan tenure limit.

To afford the most expensive unit, the family has to have plenty of liquidity so as to fulfill the MSR.

Whatever it is, the applicants will be busy calculating how much cash they can afford to put for the downpayment so that they can catch the potential upside from the rejuvenation of Jurong Lake district.

High Return Rate Among Executive Condominium Buyers - No Cause for Concern

Early last month, The Straits Times ran an article on high return rate among Executive Condominium (EC) buyers. Reasons given range from inability to secure loan, lower mortgage servicing ratio (MSR), cancelled marriage plans and so on.

Based on my experience, returning units due to financing issues and not meeting Minimum Occupation Period (MOP) is highly unlikely.

When I registered my application or e-Apps for Lush Acres on 14 July 2013, I have to submit my income statement. If you exceed the maximum income ceiling of $12,000 a month, you cannot register your application.

If I am an existing home owner, the agent will ask me to login to MyHDBPage and check whether I have fulfilled the five years MOP.

As for loans, there are bank staff around to assist. Furthermore there is usually a one month period after e-Apps before you are invited to select an unit (I was invited to select an unit on 17 August 2013 but I opt not to). This period is long enough for you to determine your maximum loan for the unit.

The more likely reasons could be cancelled marriage plans (but I have heard of people not cancelling the agreement and find another spouse over the next three years), loss of income and perhaps jitters over the current property market conditions.

So buyers could have chose to give up the purchase because they think prices will ease further down the road.

My advice is don't give up the purchase. EC prices are unlikely to ease. Simply because of the 15 months rule imposed by the Government. This has unwittingly created a period where there are no launches of EC projects resulting in pent up demand. But down the road, the property market is expected to stabilise.

That being said, I feel that the application rate for new EC projects are likely to hover around 2 as there is a steady supply of Build-to-Order flats and softness in the HDB resale market.


Next I will explore how much higher can a developer price their EC projects.