Smaller Market for EC
In December last year, the Singapore government reduced the maximum mortgage servicing ratio (MSR) of executive condominium buyers from 60% to 30%. The MSR is the percentage of the buyer’s monthly income that is used to pay for the loan on the property.
What does it affect?
Like any other housing option in Singapore, an executive condo has to be bought on a housing loan. With the cheapest executive condos selling at just below a million, buyers can use the housing loan to cover up to 80% of the cost. This loan is repaid in monthly instalments over a period of time called the loan tenor. The loan tenor given to buyers depends on several factors—such as his age and credit trusthworthiness—and is generally fixed for everyone. This means that by halving the maximum MSR, the minimum salary needed to obtain the same loan from the bank is doubled.
A lower maximum MSR means that many people who were able to buy an executive condo with their monthly incomes are now unable to do so, as they will not be able to get a sufficient bank loan to pay for the property. If you were able to buy a unit with a monthly income of $4,500 previously, you will now need a monthly income of $9,000. This new ruling will be a hit to the sales of executive condo developers for several reasons:
- Reduced market as many people from the lower income brackets who were once eligible buyers are now ineligible.
- To be eligible to buy an executive condo, the buyer needs to have a monthly income lower than $12,000. Since the MSR reduction lowers the amount that buyers can loan from the bank for purchase, developers will be forced to adjust their prices accordingly to keep their units in the affordable range of buyers.
Monthly household income limit has been increase to $14,000. This will allow more to afford ECs. However key consideration is that ECs are not located at good location. Always at suburban location and not within walking distance from the nearest Mrt station. Buying a condo like Alex Residences will ensure strong rental demand due to its close proximity to Redhill station.