Many young couples have been "taught" by their parents and society that Built-to-Order (BTO) flats are the norm for first time homeowners. It feels almost like a tradition from our parents that BTO should always be our first home. After all, this was how many of them made their first pot of gold. It is indeed true that housing may be the easy way for us to gain wealth because it becomes our asset when we sell our property at a gain.
By making the right decisions, you may be able to get a headstart from your peers. Thus it is important to accurate evaluate the differences between an Executive Condominium (EC) and BTO flat.
Executive Condominium (EC)
EC is a form of hybrid housing between HDB and private developer. Similar to the HDB, there are restrictions on the eligibility criteria. Be sure to check your eligibility or contact me if you have doubts.
ECs are very attractive as they allow those who dream of owning condos but don't the budget for it! It allows more Singaporeans and their loved ones to fulfill their dreams of having a condo lifestyle. ECs are equipped with facilities similar to their condo counterparts, eg. Swimming pools, gyms...etc
Typically, ECs are heavily discounted by 20 - 25% below private condominiums. As mentioned by Minister Khaw Boon Wan, “buying an EC is like buying a Lexus at (Toyota) Corolla price”.. After 5 years of Minimum Occupation Period (MOP), an EC will be Semi-Privatised and prices tend to appreciate . However, after 10 years from the Temporary Occupation Permit (TOP) or the collection of keys, EC would be fully privatised and can then be sold to foreigners. This is very significant as EC prices will match those of Private Condominiums.
Lets review some of the previous ECs:
As you can see from the above EC projects, an average of 45% capital gain within the first 5 years (MOP) and 120% capital gain during the period of Full Privatisation.
Lets look at a Case Study of Parc Green EC in Sengkang. Below shows the historical prices from 2003-2004
The range of prices of a 1,346 sq ft EC (3-BR unit) was between $453,000 to $480,000 back in 2004.
Today, prices are between the range of $900,000 to $930,000, almost double!
Over a 14 year period, there was almost a 100% gain. When converted to annualized returns, it is about a 5.03% yield.
Just by living in the right property, your wealth is growing at 5% p.a. This is easily beating inflation, and making your money work for you!
Still skeptical.......Ok, lets look at another Case Study,
In 2015, Signature @ Yishun (EC) was launched. And here are some of its transacted prices.
Based on the transactions, you can tell that the units were sold at an average of $750 psf.
A Private condominium, Skies Miltonia is situated nearby Signature @ Yishun. And these are its transaction prices.
Buyers of Skies Miltonia are paying an average of $1,000 psf for units in these condos.That’s a huge difference of $250 psf!
Assuming you buy a 1,000 sq ft 3 bedroom unit in Signature @ Yishun.
“Value” of the unit –> 1,000 sq ft x $1,000 psf = $1,000,000
Actual price you pay –> 1000 sq ft x $750 psf = $750,000
The Difference? $250,000.
Even if prices remain the same after 5 -10 years, you would be able to receive an immediate potential capital gain of $250,000!
And I haven't even factored in the $10,000 - $30,000 CPF grants that you will be able to enjoy as a first-time homeowner.
Now, some of you might be wondering....How do HDB/BTOs compare?
Lets see how well Executive flats (EA/EM) compare with ECs. The reason why I am comparing them is because there is a lot of people out there who are trying to decide between buying an EC or an EA/EM.
Below are the historical transactions of 143 Rivervale Drive
Based on the above data, the EAs were transacted between $320,000 to $340,000 in 2005
Fast forward to 2017/18 (13 years later),
Prices of EAs in Sengkang are only transacted between $456,000 to $620,000. That's only a 42.5% gain.
When converted to annualized returns, it is only 2.76% gain.
Based on this, it is clear to see that ECs have a higher capital gain potential! And therefore, are a better investment and asset compared to HDBs.
But there are other factors that make ECs a wiser choice.
Firstly, ECs will become privatised after 10 years. Which means you can tap into a larger pool of buyers, can sell to anyone! --- As private properties don't have any regulatory restrictions
HDBs, however, will remain HDBs after 10 years. Coupled with that, HDBs come with many restrictions and regulations controlling your pool of buyers. You can mainly sell to only Singaporeans, limiting your buyer pool.
Secondly, HDBs are not recognised as an asset by banks. YES! let me repeat that, HDBs are not recognised as an asset by banks!
There is no way for you to cash out of your HDB or mortgage it for any other purposes. The banks do not recognise it as an asset. For a private property, you can take an Equity Term Loan or basically cashing out of your property. You can use this cash for other uses.
Let’s compare between a $600,000 HDB and a $600,000 private condominium.
For the private condo, you can take an equity loan of about 70-80% of the property value minus the outstanding mortgage you have and any CPF utilised.
For the $600,000 condominium, you can cash out about $480,000 at an interest of the current property loan packages available which is less than 2%. This is the lowest you can get as compared to other loans such as car loans, business loans or personal loans. You can use this cash to start a business or even use it for investment.
You cannot do this for a HDB flat at all. For a $600,000 HDB, your money is stuck inside without you being able to cash out.
Market Situation in 2018 and future...
Just recently, HDB closed a land tender for an EC at Sumang Walk. This could possibly be the last HDB EC land to be put up for tender in the next couple of years based on confirmed government land sales (GLS).
Based on a minimum 15 month wait-out period, the EC will most likely be launched by past 2H2019.
All is not lost, as there is currently ONE upcoming EC launch for 2018. It will be the ONLY EC launch in 2018
Right now, the supply of ECs are at its lowest, with next year (2019) potentially being the last opportunity to buy an EC. Future supply is very limited.
In my professional opinion, if you would like to grab this opportunity to benefit from buying an EC, you need to act fast!
If you believe that earning your first pot of gold is important, then an EC will give you the best returns long term. An EC is the stepping stone to build your first pot of gold and begin your asset progression journey.
However, I have also met buyers who mentioned that ECs might not be in their preferred location. I can understand why some buyers believe location is an important factor.
But that's where we need to think deeper, which is more important,...The convenience of a location or the potential capital gain?
Can convenience help to pay bills? Can convenience provide for your family? Can convenience help in during rainy days?...
Choosing location at the expense of future potential upside is NOT the wise choice. We should make decisions based on facts and figures, and not emotions.
But everyone is entitled to their own choices and I respect them all. I am merely addressing the concerns I face from buyers. If you are open to exploring property options that have a great potential upside, I extend an invitation to you to contact me for a detailed financial discussion.
Warmest Regards, Teoduoproperty
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