Four 10 Hdb Owners Feel Ecs Still Relevant Pricing Concerns Persist Propnex
On August 5, PropNex announced the results of its 2024 sentiment survey on Executive Condos (ECs). The survey found that 44% of HDB owners agreed or strongly agreed with the statement that ECs were still a relevant housing option for middle- and upper-income families. However, the survey also revealed that 55% of the 1,250 respondents believed that current EC prices were either ‘unaffordable’ or ‘extremely unaffordable’.
According to Ismail Gafoor, CEO of PropNex, ECs continue to be popular among homebuyers in Singapore. New EC projects generally see stronger sales at launch compared to other private condo launches due to their more affordable pricing. However, with the rising prices of new EC projects, they may become unaffordable for their target market.
Introduced in the 1990s, ECs are a hybrid of public and private homes that cater to the “sandwiched class” – middle- and upper-income households who earn above the household income ceiling for a build-to-order (BTO) flat but are unable to afford the price of private condos. As of 2019, the gross monthly household income ceiling for ECs is $16,000.
However, Gafoor notes that the increasing prices of new EC projects may make them unaffordable for their target market. Data from URA Realis, tabulated by PropNex as of May 2024, showed that the median absolute price of ECs has reached $1.5 million. Even with the current gross monthly household income ceiling of $16,000, prospective buyers would only be able to obtain a bank financing of around $909,000, based on a mortgage servicing ratio (MSR) of 30%, an interest rate of 4% per annum (p.a.), and a 25-year loan tenure. This means that even buyers at the income ceiling would need to produce $596,500 in cash or CPF monies to afford a median-priced EC unit.
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To address the issue of affordability, 58% of the survey respondents suggested increasing the number of EC sites for tender in the Government Land Sales (GLS) programme. However, since 2015, only two or three EC sites have been available for tender on the GLS confirmed list, leading to an increase in land rates. The average price of development land for ECs has grown from $284 psf per plot ratio (ppr) in 2015 to $712 psf ppr in 2023. Most recently, a consortium of developers led by Qingjian Realty bid a record-breaking $729 psf ppr for an EC site along Jalan Loyang Besar. Increasing the supply of EC sites would potentially lower the prices of ECs.
Other suggestions to improve EC affordability included raising the household income ceiling (48%) and increasing the MSR ratio for ECs (39%). In response to raising the gross monthly household income ceiling, 37% of respondents suggested an increase to $20,000 per month, while another 32% suggested an increase to $18,000 per month. With a higher income ceiling, prospective buyers would need to produce a smaller amount of cash and CPF monies to afford a median-priced EC unit. Similarly, increasing the MSR may also help buyers access more immediate capital, but at the cost of a higher debt obligation and monthly loan repayment amount.
PropNex has proposed three policy adjustments to combat the issue of affordability. Firstly, to increase the MSR from 30% to 40% or even 45%, in line with the current total debt servicing ratio (TDSR) framework of 55% for private residential properties. Secondly, increasing the income ceiling to $18,000 or even $20,000 to allow more households to buy ECs. Lastly, increasing the supply of ECs to four sites per year to potentially lower the prices of ECs. However, Wong Siew Ying, head of research and content at PropNex, warns that these changes may have knock-on effects, such as crowding out lower-income households and incentivizing developers to raise EC prices in line with increased available capital from bank loans.