Why The $16,000 Income Ceiling For Executive Condos Is Too Low

The minimum down payment on an EC can be more than 25 per cent.

Consider this: as of 2024, ECs have an income ceiling of $16,000 per month. Now along with this income ceiling, there’s a Mortgage Servicing Ratio (MSR) that caps the monthly loan repayment to 30 per cent of your monthly income. 

(There’s also a Total Debt Servicing Ratio, or TDSR, that caps it to 55 per cent of your monthly income inclusive of other debts; but if you have so many big outstanding loans that this becomes a serious issue then ah…maybe now’s not the time to buy a property)

Now let’s take, for example, Lumina Grand – the first EC launch in 2024. The average price given at launch was $1,464 psf. 

Let’s say you buy a 1,152 sq ft. unit. That’s a bit bigger than a 4-room flat, which is usually around 960+ sq. ft.

At $1,464 psf, the price tag comes to $1,686,528. This means the maximum amount you can borrow (75 per cent) is $1,264,896. 

Over a period of 25 years (let’s assume you get maximum loan tenure), and at the floor rate of four per cent* per annum, the likely loan repayment amount is about $6,677 per month. To meet the MSR, this must be no more than 30 per cent of the borrowers’ income – so that means they would need to bring in about $22,256 per month; perhaps a bit more. 

*It doesn’t matter if your actual loan interest rate is lower. Four per cent is the floor rate used to calculate MSR and TDSR for a bank loan (and there’s no HDB loan for ECs) 

But the income ceiling is $16,000

See the issue yet? 

With $16,000 per month, monthly loan repayments can’t exceed $4,800 per month. Anything above that, and you need to make a bigger down payment. In our above example, the maximum loan amount would have to fall to about $909,000+, for the monthly loan repayments to drop to around $4,800. 

(Also bear in mind this assumes a 25-year loan tenure, which not every buyer is young enough to get.)

You could, of course, go for a smaller unit and hope to qualify; but EC buyers are, by nature of eligibility requirements, almost entirely family buyers (many ECs don’t even have two-bedders, barring some like Ola). Or if you’re an upgrader, the sale proceeds from your previous flat will help with a bigger down payment; that’s why many see their flats as a stepping stone to an EC in about five years. 

But we are drifting further from the likelihood of first-time home buyers being able to afford an EC right from the get-go; and maybe to a situation where more buyers need parental support (i.e., the forgiving bank of mum and dad) to get an EC as a home. 

A time is coming when we may need to raise the income ceiling further for ECs, or else somehow lower developer prices; and the latter seems unlikely, as there are certain realities regarding land prices and construction costs. 

But demand remains – probably because there’s a smaller gap between ECs and condos in many minds today

We’ve moved past the previous attitude that “your EC can never be worth as much as my private condo.”  This is partly due to the many improvements we’ve seen in the EC segment. Over the past decade, we’ve seen more ECs within walking distance of MRT stations (here are at least 26 of them), and we’ll probably see even more as the train network expands. 

Many of the old allegations and rumours, such as developers taking “shortcuts” or using “lousy builders” to work with ECs’ tighter budgets, have started to fade. Quite often, we come across buyers who don’t even know they’re looking at an EC until we inform them.

The 10-year mark to get to full privatisation is also less relevant in buyers’ minds. By now, the market has seen that foreigners and entities are more interested in prime, luxury condos anyway; and that’s doubly true with the higher ABSD rates they face. So from a practical standpoint, an EC doesn’t need to reach past the 10th year to fully unlock its resale potential – five years is more than enough. 

In light of this, perhaps buyers won’t mind needing that bigger down payment on an EC today. But if you do want one, you’re going to save more aggressively than the buyers from earlier decades.

Meanwhile in other property news…

• Here are the cheapest HDB maisonettes you can buy in 2024; still well under $1 million, thankfully. 
• What are the most profitable resale condos so far in 2024? They’re on this list and congrats to the seller who made $1 million in eight years.
• I admit it. Back when Hundred Palms Residences was launched, I rolled my eyes at the hype and the long queues. I was wrong. It’s one of two ECs with astonishing profits for those who managed to get an early sale.
• Looking for decent dual-key units for extended family, or a tenant? Here are some solid options for 2024.

Weekly Sales Roundup (18 November – 24 November)

Top 5 Most Expensive New Sales (By Project)

Top 5 Cheapest New Sales (By Project)

Top 5 Most Expensive Resale

Top 5 Cheapest Resale

Top 5 Biggest Winners

Top 5 Biggest Losers

Transaction Breakdown

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