Thursday 12 December 2013

MND tweaks rules for EC purchases

Changes include tighter loan curbs and easing of cancellation fee
By Cheryl Ong, The Straits Times, 10 Dec 2013

NEW rules governing the purchase of executive condominiums (EC) were announced last night that could help home buyers, along with a tighter curb on loans.

The three main changes announced by the Ministry of National Development (MND) are aimed at bringing the terms for ECs more in line with the rules applying to public housing, and to support a stable EC market.

One measure, similar to that for Housing Board purchases, makes it less financially onerous for a couple if they back out of a sales and purchase agreement.

But buyers will have tighter loan curbs placed on them.

Also, second-timer applicants who buy EC units directly from developers will have to pay a resale levy. The new requirement applies to EC land sales launched on or after Dec 9.

The reforms stem from a review by the MND that included public feedback.

The tighter loan measures will require repayments for a mortgage for an EC unit to be capped at 30 per cent of the buyer's gross monthly income.

Previously, EC buyers were limited by the total debt servicing ratio, which caps a borrower's monthly repayments on all loans, including any new mortgage, at 60 per cent of his gross monthly income.

The change follows similar measures introduced by the HDB and the Monetary Authority of Singapore to encourage financial prudence among buyers of public housing. MND said that the move "discourages EC buyers from over-stretching their finances and supports an affordable and sustainable EC market".

The cap applies to purchases where the option to purchase is granted on or after Dec 10.

R'ST Research director Ong Kah Seng said that buyers will now have to think twice about buying pricey EC units.

"Developers have raised prices according to the improved EC demand, and this measure will ensure that buyers purchase ECs in accordance with their earning capacity," he said.

But there is good news as well. Rules penalising EC buyers who back out of sales and purchase agreements have been eased.

The cancellation fee has been cut from 20 per cent of the purchase price to 5 per cent - the same figure that applies to HDB flats.

The new fee applies to EC land sales launched on or after Dec 9.

The ministry said the change reflects the fact that unlike buyers of private housing, EC buyers cannot sub-sell their units if they realise they cannot complete the purchase. Having to pay a 20 per cent cancellation fee was seen as particularly onerous for young couples.

Century21 chief executive Ku Swee Yong noted that developers that bought EC sites in the past few months might have to keep units at upcoming launches small, so that the total selling price is kept affordable.

EC changes set to hit upgrader demand
Stricter loan rules, resale levy make exec condos less attractive: Experts
By Cheryl Ong, The Straits Times, 14 Dec 2013

HOUSING Board flat upgraders are likely to be the hardest hit by changes to the executive condominium (EC) housing scheme.

On Monday, the Government tightened loan rules for those buying EC units, a popular hybrid of public and private housing.

Buyers looking to sell their public flats to buy an EC unit may have to moderate their expectations after monthly mortgage payments were capped at 30 per cent of their monthly pay, experts said.

This makes financing markedly tighter, in addition to July's total debt servicing ratio (TDSR) which capped total monthly debt payments at 60 per cent of gross monthly income across the board.

The introduction of a resale levy applying to some EC buyers will also make EC units less attractive to HDB upgraders.

"With the tightening of the mortgage service ratio at 30 per cent and the resale levy imposed, it makes greater sense for upgraders to consider resale private properties or new launches that are rightly priced," Mr Mohamed Ismail, chief executive of property agency PropNex, said.

EC units are sold with Housing Board restrictions. They become fully privatised after 10 years.

The move came after HDB upgraders flocked to EC launches following July's new loan framework. EC applicants were less affected by the TDSR as banks excluded monthly payments for their public flats when computing the loan, said OrangeTee research head Christine Li.

This is because buyers are required to sell their existing flats when the EC development is ready.

Experts noted that EC homes - especially bigger and pricier units - could be less attractive now, given the cap on financing.

"(This) means that a household earning $10,000 can secure only a $600,000 loan from the bank," said Mr Ismail.

"Previously, a household earning the same gross salary could get a larger $1.2 million loan.

"This is a drastic drop of 50 per cent in purchasing power and will severely dent an upgrader's ambitions."

Ms Alice Tan, Knight Frank research head, added that the new resale levy, which depends on the flat type of the first subsidised home, will also erode cash profits from the sale and reduce buyers' appetite for ECs, whose prices have already risen this year.

However, upgraders can still look for private units, as they will have more leeway to secure a bigger loan compared to ECs.

HDB resale homes also have lower price tags and could be a viable option, especially after cash premiums fell below $10,000 for the first time last month, added Century 21 chief executive Ku Swee Yong.

Mr Li Jun, general manager of Qingjian Realty, said unit prices at two upcoming ECs in Woodlands and Anchorvale will be maintained as building plans were finalised before the changes.

However, he noted that his firm will be more cautious when bidding for EC sites in the future, and that units could be built smaller to keep them affordable.

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