ECs: Why so unfair?

Executive condomiums (“ECs”), in case you weren’t familiar with the term, are 99-year leasehold properties that are developed and sold by private developers within certain restrictions imposed by HDB. ECs have condo facilities such as pools, gym, etc.

To be eligible to purchase from the developer, buyers have to be Singaporean and the joint purchaser has to be Singaporean or PR, the buyers have to form a proper family nucleus, purchasers cannot own or dispose properties 30 months prior to application, buyers cannot earn more than $12,000 per month etc. Click here for the full requirements at the HDB website. Eligible direct buyers are able to obtain housing grants from HDB.

Additionally, purchasers of units have to be the principal occupiers of the property for the first 5 years starting from the TOP of the project, meaning that they cannot sell the place or rent out the whole unit. From the 6th year from TOP, Singaporeans and PRs can buy resale without restrictions. From the 11th year onwards, foreigners can buy without restrictions. Buyers of resale ECs are not eligible for HDB subsidies. From the 6th year onwards, the whole unit can be rented out.

In other words, ECs are condos that are meant for own-stay buyers who intend to stay there for at least 5 years. After that, they can pretty much sell it as a private condo (subject to citizenship restrictions).

To me, it’s a really unfair scheme to everyone other than those who are able to buy. It’s basically the government subsidizing a group of people to buy private housing. To those who cannot yet afford ECs, their advantage of housing grants is lost, which isn’t going to help them fulfill their dream of owning private housing. To those who are already buying private, not only are they not eligible to buy ECs from developers, the new stock of subsidized housing of equal or better quality coming online pushes down the rent and sale prices.

It’s one thing to subsidise and help the disadvantaged or low income group. After all, it’s the right thing to do to help them to get a roof over their heads and give them a leg up on their way to either upgrade to a bigger flat or private housing in the future. However, when it comes to ECs, this argument doesn’t hold any water. After all, a monthly income ceiling of $12,000 is hardly shabby. Quick calculations will tell us that even at 3.50% interest rates, the couple can take enough loan (at 80% LTV and 30-year tenure) to buy a $1.7m property, well within the range of private condos. Do we really need to help this group of people buy a condo at below market prices? I really question the purpose of this government policy.

Secondly, have you even seen the quality and pricing of recent launches? CityLife @ Tampines boasts “hotel-style luxury” with concierge service and 100m infinity pool, and has a 4,342 sq ft penthouse priced at over $2m! HDB housing is meant to be low-frills to keep costs low and pricing affordable. Shouldn’t that logic be extended to ECs as well? Even if we leave aside my personal view that semi-public housing should behave like semi-public housing, with such facilities, I would imagine that maintenance and sinking fund costs will be at least $400 per month! I don’t think it’s the fault of the developers, by the way. As profit-driven companies, they are well-justified in developing projects that people want and are willing to pay for. The blame lay squarely on the government for not laying out clear guidelines for such projects.

Citylife
Image courtesy of City Life

As an aside, I read an article from Mr Ryan Ong of MoneySmart.sg with regard to the downside of ECs. While I have no major argument with the issues he raised (since he is mainly comparing the downside vs buying HDB), I do have a small gripe with point 3, which is that people regard ECs as lower than private condos. I would argue that’s only true if everything is the same. However, with super-luxurious ECs with facilities way surpassing that of private condos, pricing is almost guaranteed to be higher than other condos in the area. Private condos in mature estates are going for $900 – 1,200 psf currently. Surely, with all its trimmings, these new ECs are going to be priced above that in 5 years! Even if the market stays stagnant for the next 5 years, EC owners are looking at a capital appreciation of at least 25%. No wonder they’re so popular!!

I would like to suggest some ways to even up the playing field a little, just to make the scheme a little fairer:

1. There should be developer guidelines to limit the facilities, layout and/or price of EC designs so that they won’t be excessively opulent;
2. No subsidies or grants for EC purchase (not that they make much of a difference anyway);
3. ECs should not be automatically privatised, but rather have to go through a privatisation process and pay a fee to privatise (like HUDC developments). The fee should be calculated to bring the EC price up to the market price of an equivalent private condo.

I am particularly in favour of item 3 above for the following reasons:

1. Without a privatisation fee, it would be like the government (almost) guaranteeing a minimum 25% appreciation over 5 years, something that I don’t view as fair;
2. If the government’s aim for the policy is only to help Singaporeans attain private condo living (as compared to private condo ownership), then privatisation is not a requirement;
3. If the EC is not privatised, it will keep prices low enough for upgraders from HDB flats, giving more people the opportunity to live in a private condo environment.

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