While an Executive Condominium (EC) is more attractive price-wise, there are sometimes good reasons to pick a regular condo. Here’s what you need to consider:
What advantages does a regular condo have over an EC?
The key points of difference to note are:
- Ability to generate rental immediately
- Flexibility of sale
- Buying restrictions
- Capital appreciation
1. Ability to generate rental immediately
The biggest difference between a regular condo and an EC comes in the first 11 years. During this time, ECs count as HDB properties – they are subject to the Minimum Occupancy Period (MOP) of five years. You can’t sell or rent out your EC during this time.
This makes a big difference if you’re more focused on investment than home ownership. For example, say your plan is to stay with your parents, and then buy and rent out a condo.
If you purchase an EC, it’s a bit cheaper than a regular condo. Let’s say your EC is just $1 million, compared to $1.1 million for a regular condo. You save $100,000 off the price.
You can get a bank loan of $750,000 for your EC (at a maximum LTV of 75 per cent). Assume an interest rate of two per cent per annum, over 25 years. This comes to a total monthly repayment of about $3,180 per month.
Now you can’t rent out the unit for the first five years, so you’re forced to pay this mortgage out of pocket. Over a period of five years, that comes to a cost of $190,800 – far more than the $100,000 you “saved”.
2. Flexibility of sale
There is a limitation on selling a regular condo, in the form of the Sellers Stamp Duty (SSD). This imposes a tax of 12 per cent if you sell on the first year, eight per cent on the second year, and four per cent on the third year.
However, you’re free to sell without penalty from the fourth year onward. This is still two years shorter than the MOP. This sort of flexibility can be important. For example, what happens if you face a financial emergency on the fourth or fifth year, and need to downgrade? With an EC, you’re stuck due to the MOP. With a regular condo, you can quickly downgrade and rectify your situation.
If your financial situation is more volatile than most people (e.g. you run your own business, or work on commissions), don’t underrate the importance of having no MOP restriction.
On top of that, an EC may have to be sold to a more limited pool of buyers. Remember that ECs count as HDB properties until the 11th year or beyond. This means you can’t sell the EC to a foreigner, for example.
As any property agent can tell you though, narrowing the pool of buyers lowers your odds of finding a good price.
3. Buying restrictions
You need to qualify under one of the following schemes to buy an EC:
- Public scheme
- Fiance / Fiancee scheme
- Orphans scheme
- Joint singles scheme
You need to be a Singapore citizen aged at least 21, and your co-applicant needs to be a Singapore citizen or Permanent Resident. If you’re applying under the joint singles scheme, both you and your joint applicant must be citizens, and above the age of 35.
On top of all that, you must not own or have sold any private property (locally or abroad) for the past 30 months, and your household income cannot exceed $14,000 per month.
There is, of course, no such restriction with a regular condo – in particular, note there’s no age restriction. If you’re a single Permanent Resident aged 28 who can afford it, you can just go for it and get a regular condo.
4. Capital appreciation
We constantly hear that EC prices are “narrowing the gap” with their regular condo counterparts. However, a simple comparison – based on recorded URA transactions – shows that regular condos have appreciated better:
As you can see, regular condos have appreciated by over 158 per cent since ’04, whereas ECs lag behind them at just 130 per cent appreciation.
We don’t know if a day will come when the EC / condo price gaps disappears altogether – but we have heard a lot of people claiming “the gap is narrowing”. We’ve heard them say it for the past 15 years, while seeing little real change.
This isn’t to say ECs are bad, just that there are situations where regular condos are worth the price difference
We’re not disparaging against ECs – in fact, we think they’re a pretty great deal, given that it’s a way to get private housing with government subsidies. They’re also cheaper than a counterpart with the same general location and amenities, and it’s hard to ever argue that’s a bad deal.
But there are some situations when a regular condo more than justifies the price difference. Based on the above, we’d say pick a regular condo if:
- Your purpose is solely investment
- You’re not sure if you want to hold on to the property for 10 years or more
- Your financial situation can be a bit volatile in the next five years
Would you buy a regular condo or an EC? Voice your thoughts in our comments section or on our Facebook community page.
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