WHAT IS THE DIFFERENCE BETWEEN A PRIVATE CONDO AND AN EXECUTIVE CONDO?

Both these residential housing options are marketed and sold by private developers and offer similar facilities such as swimming pools, landscaped areas, tennis courts, gyms, 24/7 security, etc.

WHAT IS A PRIVATE CONDO?

A private condominium or condo is a type of privately-owned housing where the buildings or blocks contain numerous residential units. Unlike public housing, private condos offer access to additional facilities such as a pool, gym, garden, clubhouse, round-the-clock security and more. Each condo development is responsible for its own upkeep.

WHAT IS AN EXECUTIVE CONDOMINIUM (EC)?

ECs are a form of hybrid housing that was first introduced by the government in 1999. This public-private type of housing caters to the aspirations of the “sandwiched” class Singaporeans looking for an affordable middle ground between HDB housing and fully-private condominiums. Once the EC owners fulfil the Minimum Occupation Period (MOP) of 5 years, they can sell their house to Singapore citizens and permanent residents (PRs).

An executive condo counts as an HDB property for the first 10 years. After the first decade, an executive condo ‘magically’ transforms into a fully private property, which means they are no longer constrained by HDB rules. It generally has a leasehold tenure of 99 years.

ELIGIBILITY TO BUY AN EXECUTIVE CONDO

Since an EC starts as public housing, the buyers must comply with the following terms & conditions set by the HDB:

Family nucleus

You can apply to buy a new EC under one of the following eligibility schemes:

Public Scheme

Fiancé/Fiancée Scheme

Orphans Scheme

Joint Singles Scheme

Citizenship

At least one of the applicants needs to be a Singapore Citizen (SC), with the other being an SC or Singapore Permanent Resident (SPR).

Both applicants must be SC if they are buying under the Singles scheme.

Income

The monthly household income must not exceed $16,000.

Property ownership

Buyers must not have owned or disposed of any private property within the last 30 months.

Buyers must not have bought more than one HDB, DBSS or EC flat previously.

PRIVATE CONDO VS EXECUTIVE CONDO – DIFFERENCES

WHY BUY EC?

Buying an EC presents the middle-class “sandwiched” Singaporeans with the best of both worlds. It offers an attractive combination of subsidised pricing of public housing and the quality of life in a private condominium. When a buyer purchases an EC during its launch, it is like buying a government-subsidised property with all condo-like facilities at a discounted price.

Although executive condominiums are built and sold by private real estate developers, the Singapore government subsidises the land cost. This is why ECs are generally 25% to 30% more affordable than private condos of similar size and location.

IS IT REALLY WORTHWHILE TO BUY AN EXECUTIVE CONDO(EC)?

An executive condo is regarded as a value buy as you can enjoy the perks of living in a private property at a subsidised price. It is also cheaper than its private counterparts with similar locations and amenities.

While lower price and the 10-year privatisation rule are two obvious benefits of choosing an EC over a private condo, some EC buyers are also confident that the fully privatised ECs have more potential for capital appreciation than private condos.

WHEN IS BUYING AN EC NOT BE A GOOD IDEA?

Even though executive condominiums are considered HDB properties in the first 10 years, you can finance them only through a private property loan (instead of an HDB loan). That means EC buyers can borrow up to 75% of the property price from the bank and then make a downpayment of the remaining 25% (5% of which must be paid in cash).

In addition to the Total Debt Servicing Ratio (TDSR), there is an additional Mortgage Servicing Ratio (MSR) rule for ECs. When buying a private condo, you only have to consider your TDSR. TDSR indicates the money from your gross household income you can use to pay all your debts.

For ECs, the borrower must also factor in the MSR of 30% when taking up a home loan. It shows that financing an EC may require higher earning power than affording a private condo.

IS IT GOOD TO BUY RESALE EC?

Buying a resale EC from its owner guarantees that it has completed the MOP and is either fully privatised or closer to full privatisation. Thereafter, the buyers of resale ECs no longer have to wait to fulfil the MOP. This will be more important to those who intend to sell – now or in future. Remember that if the resale EC has served its 5-year MOP, the buyer has to be a Singapore Citizen or Singapore PR.

All restrictions are lifted from the EC unit after 10 years and onwards. It will be treated as a private condo that can be sold to foreigners and everyone else, including companies in Singapore. Resale ECs are usually move-in ready.

However, remember that resale ECs demand at least a 25% downpayment and are not entitled to any housing grant. So, be ready to have cash or CPF funds in your account.

Note: If you already have an EC and want to sell it, prices usually go peak between the 8th and 10th year.

IS IT WORTH BUYING PRIVATE CONDO IN SINGAPORE?

Private condos offer more flexibility in buying and selling.

Executive condos can be purchased if the buyers meet certain eligibility conditions. However, no such restrictions apply to regular condos.

When selling a regular condo, you have to pay the Seller’s Stamp Duty (SSD) tax that applies during the first three years. But from the fourth year onwards, you can sell the private condo anytime you like without penalty.

ECs must adhere to the MOP of 5 years to sell or rent out the whole condo unit. Moreover, the MOP for EC begins from the time of the development’s TOP (Temporary Occupancy Period).

The 5-year MOP for ECs is still two years more than the duration you need to pay the stamp duty for a regular condo. Also, a private condo can be a better choice if you are looking to collect rental income sooner.

In most cases, the psf prices of the ECs remain largely stable after they become fully privatised after 10 years. On the other hand, the psf prices of resale condos continue to grow with time. The psf difference between fully privatised ECs and resale condos in their respective districts can differ by 37% to 50% from the 11th year onwards.

So if you are planning to buy a property for investment purposes only with the intent of selling it in the future, a resale condo will always be the better bet as they tend to see more capital appreciation in terms of absolute psf prices.

Therefore, consider buying a regular condo if:

Your purpose of buying the property is only investment.

Your financial situation can be a bit volatile in the next 5 years.

You are not sure if you want to hold on to the property for 10 years or more.

WHY IS EC CHEAPER THAN A CONDO?

Executive condos provide a cheaper alternative to private condos for two reasons:

Firstly, ECs are usually built at less accessible locations, like in non-matured estates keeping costs low compared to private condos. ECs are generally further away from existing MRT stations and malls, mostly located in Singapore’s Outside Central Region (OCR).

Secondly, the government subsidises the land prices for executive condos. This is why ECs are typically cheaper than their private counterparts at launch.

Moreover, as discussed, the government allows EC buyers to take advantage of certain CPF housing grants, such as the Family Grant and the Half-Housing Grant.

CAN I OWN BOTH EC AND CONDO?

Yes, you can purchase a private condo once you have fulfilled the MOP of 5 years for the EC unit directly purchased from the developer.

Note that if you have any outstanding home loan for your existing EC, you can get a maximum loan to value quantum of up to 45% for the second property. With no outstanding loans, you will be eligible for 75% of the property value. Plus, you will be subject to an ABSD of 17% for your second residential property as a Singaporean citizen.

CAN I BUY EC AFTER SELLING A PRIVATE PROPERTY?

If you or your family members – to be listed as co-owners – already own a private property in Singapore or overseas at the time of EC application, then you are not eligible to buy an EC unit. You can only apply for an EC unit after 30 months from the date of disposal of your private property.

FACTORS TO CONSIDER WHEN DECIDING BETWEEN AN EC OR A PRIVATE CONDO

If you are an HDB upgrader who wants to own a non-landed private property at a good price, you might be confused about whether to upgrade to an EC or a private resale condominium. Executive condominiums are an attractive choice for HDB upgraders for their affordability and investment potential. Here are a couple of pointers to look into:

No ABSD

When upgrading to an EC, you don’t need to pay the ABSD even if you buy the EC before selling your previous flat. However, you would have to pay the ABSD on your private condo if you purchase the condo first and sell the flat after moving in. It is because you are now buying the private condo as your second property at the time of purchase.

Although you can apply for ABSD remission later (if eligible), managing enough funds for both downpayment and the ABSD can be stressful to some buyers.

Lease issues

An executive condo is a 99-year leasehold condo (like your previous HDB flat). However, private condos can be 99-year, 999-year, or freehold properties. This makes private condos the preferred choice among some buyers and investors.

FINAL THOUGHTS

The final decision between ECs and private condos generally boils down to whether you see the property as an investment (and if yes, then for what timeframe?) or a home to live in.

If affordability is your main concern, ECs will make more sense for a first-time buyer looking for a comfortable place to call home or raise a family while being practical with their finances. But if budget is not an issue, buying a private condo may be a better choice. A private condo makes a good choice for long-term investment and can be sold without any MOP restrictions.

Although the gap is narrowing, the price gap between ECs and private condos is still evident. ECs are still an affordable option for HDB upgraders wishing for a higher standard of lifestyle.

We would love to help you in your property journey. Contact one of our TemasekClass consultants for a non-obligatory discussion.