Another government agency has taken their turn to implement new cooling measures. The Ministry of National Development (MND) announced that they are introducing three new measures to better align the Executive Condominium (EC) Scheme with other public housing. And what a smack down it is. If you have already booked an EC, good for you. Just make sure your home loan is the right one for you. If you are still planning, we take a look at the latest rules and why the dream of owning an EC may have faded for many:
With ECs previously having seen record-breaking prices, the cooling measures come in the wake of all the other measures throughout the year to create a sustainable public housing market. The 3 measures to be implemented are:
- Reduction of Cancellation Fees From 20% to 5%
- Resale Levy for Second Time Applicants
- Imposition of 30% Mortgage Servicing Ratio (MSR)
1. Reduction of Cancellation Fees From 20% to 5%
Previously, if you were unable to complete the purchase of your EC, you would have to pay 20% of the purchase price in cancellation fees. This could happen to couples who aren’t able to go through with their marriage for whatever reason, and that 20% in cancellation fees represents a significant financial burden, on top of the emotional stress (if any) of not getting married.
The new reduction in fees for EC buyers is similar to the current cancellation fees for Build-to-Order (BTO) flats.
2. Resale Levy for Second Time Applicants
The second measure affects second-time applicants who are buying EC units directly from the developer, who will now have to pay a resale levy, similar to second-time applicants who are buying BTO flats.
Previously, these buyers benefit from lower prices due to the initial eligibility and ownership restrictions imposed on EC purchases, without having to pay a resale levy. You can get a full list of the details for payable levies here.
This measure aims to bring a level of fairness and parity to both EC and BTO buyers.
3. Imposition of 30% Mortgage Servicing Ratio (MSR)
This is the big one. The new 30% MSR, which affects EC purchases whose OTP was granted on or after 10 Dec 2013, is meant to encourage the same financial prudence amongst public housing buyers as the previous measures imposed by HDB and MAS earlier in the year.
ECs previously did not come under the same MSR restrictions that other public housing flats were subject to. What this meant was that with a bit of a financial stretch, you could still afford to get a 3-room EC.
Executive Condominiums For The Cash Rich Only?
That’s all great, until you consider several things:
- ECs vs Private Property
- The income ceiling for ECs
Private property now doesn’t come under the same MSR and income restrictions as ECs, hence people can choose to allocate more of their income to service a loan, allowing them to buy a more expensive place. Additionally, there is an income ceiling of $12,000 to qualify for buying an EC.
So with a combined income of $12,000 at a 30% MSR, the maximum you can borrow is approximately $800,000. What this really means is that if you are buying an EC in excess of $1 million, the amount of cash on hand you are going to need increases greatly.
If you earn more, you cannot get an EC. If you earn less, you need more cash for downpayment. So if you still want to buy, then sure – just fork out more cash. And this is assuming you are able to qualify for the maximum loan.
What Does This All Mean?
Short of saying that anyone earning below $10,000 a month can kiss their EC dreams goodbye, this does represent a significant squeeze on the ability for people to buy an EC. Let’s not forget that getting a loan in itself is already a Harry Potter-sized labyrinth you need to navigate. But if you are still looking to get an EC, you can find out the latest home loan rates and get help at MoneySmart.
So if you earn between $10,000 – $12,000, getting an EC now is going to be a bit more of a financial pinch. And if you earn less than $10,000 and insist on buying an EC, you are either 1) swimming in liquid cash ala Scrooge McDuck or 2) crazy.
With a predicted drop in the number of people who can now afford to buy an EC, we’re waiting to see just how much prices will drop by. We will be keeping close watch on the developments so follow us on Facebook as we keep you up to date. In the meantime, hold on to that dream.
What are your thoughts on these new measures? Will this help cool the EC market?
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