There’s a serious lack of thought in the EC (Executive Condominium) vs. regular flat debate. Ask most Singaporeans and the knee jerk response is “ECs are better, duh“. Because they’re condos. Because there’s a pool. And especially because Susan in accounting, when she got engaged, got an EC with her fiance…so now I have to live off rice and expiring spam to buy one too. In this article, we explore the potential drawbacks of ECs:
What are ECs (Executive Condos) Anyway?
ECs are another “sandwich” class of flats, which include HUDC, DBSS, maisonettes, etc. (When it comes to sandwich properties, HDB is like the Subway of developers)
Like regular condos, an EC is designed and built by private developers. As such, they have pools, gyms, clubhouses…the usual facilities you find in a condo. But unlike full fledged condos, ECs have a 99 year lease, and are not freehold.
(Also, you can apply for the $30,000 housing grant for ECs, just as if they were regular flats)
Overall, ECs seem to have all the advantages. But there are downsides to consider:
- Higher Down Payment
- The Interest Rate Illusion
- Comparisons to Real Condos
- Location Over Amenities
1. Higher Down Payment
You can’t get a HDB loan for ECs. So unless you’ve diligently saved up for years, your cash flow will back up worse than the toilets at the World Curry Festival.
See, the down payment for a bank loan is a whopping 20%. You need a minimum of 5% in cash, and the rest can come from your CPF. Assuming your EC costs $700,000, that comes to $35,000 in cash, and $105,000 from your CPF.
In contrast, a regular flat (financed by a HDB loan) has a down payment of just 10%. This down payment can come entirely from your CPF, so you need $0 in your bank account.
Even if you can afford an EC, you should question the impact on your financial planning.
If you’re a young couple, $35,000 might pay the wedding bill. And if you’re between 30 to 35 years old, remember you have other priorities: The cost of a car, of raising children, of insurance premiums, etc.
So let me present you with an alternative: Pay the wedding bill, live stress-free for five years, then sell the flat and move into a real condo. The early years of a marriage should be happy and stress-free. You should only throw things at each other after the children go to University.
2. The Interest Rate Illusion
Right now, ECs are popular because bank loans are popular. The two factors are related.
The current HDB loan has an interest rate of 2.6%, whereas banks have a rate of around 1.5%. The theory is that, if you take a bank loan and sell after five years, you will make more money. After all, you’ve paid less interest.
This tactic may work for a property investor, who’s speculating on the EC’s appreciation. But if you’re a home buyer, or you’re intending to stay for more than five years, it doesn’t work for you.
The low interest rates are a temporary phenomenon. They’re due to American policies like quantitative easing. This keeps the SIBOR rate at a repressed, all-time low. By about 2015 (or even earlier), the bank rates will go back to their historical average of 3% to 4%.
At that point, home buyers will watch their loan repayments double. So if you want to buy an EC for a home, understand this: It’s not as cheap as it looks right now.
3. Comparisons to Real Condos
An EC is just like a real condo, with all the facilities. So when it’s time to sell, an EC will attain condo prices, right?
Sure, if we apply logic. But Singapore’s property market respects logic like a Chinese factory respects work-life balance. It doesn’t matter that ECs also have private developers, or that ECs have the same facilities. They won’t fetch the same resale value as private condos.
Here’s an e-mail from I got from a property agent, who summarizes the mentality:
“The mentality of Singaporeans is that EC cannot be worth as much as private condo. If resale ECs try to reach condo prices, the private condos will just go up further. If you are a seller, will say ‘My private condo should sell at EC price’?”
Let’s take a hypothetical situation. Say you want good capital gains, and you’re looking at an EC that costs $900,000. You might want to explore private, non-central condos that are close in price. Yes, a $1 million condo has a higher loan repayment; but the resale value might be worth it.
4. Location Over Amenities
Location and price come first. This should be common sense.
A good view, a great pool, the best gym…these are nice to have. But how are you when you need to get up at six in the morning, because the office is an hour away? As I recall, it’s bad form to stick your mouth under the pantry’s espresso dispenser.
Also, don’t discount public transport, even if you have a car. If the spouse has to work some day, or the children are far from school…well only one person can use the car at a time.
While we’re at it, let’s talk about resale. Property value, including resale value, is more affected by location than amenities. The price of your home is determined by the district its in. Even if you have the best view, it’s hard to sell your place at 10% more than your neighbour’s.
Are you a big fan of ECs? Comment and tell us why!
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