Is an Executive Condo (EC) or a Condo more Suitable for you?
As the median monthly household income rises in Singapore, an increasing number of young couples are seen expanding their housing options to include Executive Condos (EC) and even Condos. At the same time, there is also an upward trend in growing families who are looking to upgrade from their HDB flats. An EC and a condo may not be much of a difference to the average home buyers. They both offer luxurious and city-fringe living, comes with in-built amenities, and also 24/7 security. Although an EC may be more attractive in terms of the price point, there are also good reasons to purchase a Condo.
The current income ceiling for HDB BTO flats is at $14,000. If you are a first-timer young couple, whose incomes have exceeded this amount, or are looking for a private property with full facilities, you can consider between an EC or a Condo.
So, which exactly is more suitable for you? Read on to find out!
Executive Condominium (EC)
ECs are developed and sold by private developers, but are bounded by HDB rules and regulations. Land cost is subsidized by the government, thus the more affordable price. They are considered public housing, but will only become fully privatised after 10 years. All ECs also have a leasehold tenure of 99 years.
Condo
Owners own a share of common areas and amenities such as the hallway, elevator, multipurpose sports courts, swimming pool etc. For Condos, there are different types of tenures, which include the most commonly seen 99-year leasehold and freehold.
If you are looking to generate immediate rental income
ECs are considered as public housing for the first 10 years from the launch date. Just like HDBs, they are also subjected to the Minimum Occupancy Period (MOP) for the first 5 years of purchase.
In short, you will not be able to sell or rent out your entire EC unit for the first 5 years. If this is going to be your 2nd property and you are looking to earn some rental income, this will be a cause for concern. However, if you are going to occupy the place for personal enjoyment, an EC is definitely a more affordable option.
Here’s a short case study for your reference:
An EC would cost you S$800,000 and a similar condo in the same district would cost you about S$900,000. Assuming that a bank loan of S$600,000 was taken at an average interest rate of 2.1% per annum for 25 years. The monthly instalment would be S$2,573. Keep in mind that due to the MOP, you will not be able to rent out the unit for the first 5 years.
Mortgage payment for the first 5 years = ($2,573 x 5 x 12) = S$154,380
The opportunity cost of purchasing an EC over a condo would be S$154,380 - $100,000 (the difference in price between the EC and condo) = $$54,380.
Ultimately, it boils down to your objective of purchasing the unit.
If you are looking at capital gains and long run-returns
Aside from the minority who purchase a house based on emotions, most people want to achieve capital gains when they do so. The hefty downpayment might be a deterrence, but most condos do not have a decaying lease. For investment, we also highly recommend a condo with a 99-year lease as compared to a freehold condo.
Since 2004, statistics have indicated that Condo prices have appreciated by 158% while EC prices at around 130%.
If you are looking for flexibility
Purchasing a condo gives you the flexibility to sell your unit without any restrictions. The only issue that will make an impact? It’s the Seller’s Stamp Duty (SSD). This is a tax imposed for selling your private property within the first 3 years of purchase.
Here’s an illustration of how the tax is being computed:
There will be no penalty when you sell your Condo after the 3rd year. As compared to selling your EC? You can only sell it on the 6th year of purchase!
In particular, during this period of uncertainty because of COVID-19, a Condo owner has more flexibility to sell off his unit. An option would be for him to rent a unit until the economy becomes more stable again. On the other hand, an EC owner will have no choice but to hold onto his unit.
For those who have unstable and volatile incomes (for eg. business owners, real estate agents like us), having a MOP might be a cause for concern. Moreover, you can only sell an EC to Singaporean and PRs after the first 5 years, and only to foreigners after 10 years, when they are fully privatised.
So, which is more suitable for you?
Our team at Above Homes believe that if you are looking at investing, and have ample income, a Condo will be your ideal choice. However, if you have large commitments and are just looking for a comfortable upgrade, you may want to consider purchasing an EC with all the government subsidies. Note: You can only buy an EC with a bank loan!
We hope that this article has cleared up most of your doubts! Do contact us for a property analysis if you are still unsure which option is the best for you.
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