Should you upgrade to an executive condo (ec) or a private condo?

If you’ve reached the five-year Minimum Occupancy Period (MOP) on your flat, you can now consider selling your flat and upgrading. For many homebuyers, this may come down to a choice between Executive Condominiums (ECs) and private condos. Here are some key points to help you decide:

WHAT ARE THE MAIN DIFFERENCES BETWEEN UPGRADING TO AN EC, VERSUS A CONDO?

  • There is no ABSD for upgrading from a flat to a new EC
  • There is an income ceiling for the EC
  • You have another MOP to fulfil if you choose ECs
  • Availability of CPF housing grants
  • Lease issues

Finally, we will look at the price and potential returns.

1. THERE IS NO ABSD FOR UPGRADING FROM A FLAT TO A NEW EC

This is an issue if you purchase your condo before you sell your HDB flat (if you are willing to sell your flat first, and then rent while waiting for your new condo, you can skip this part).

If you purchase a private condo, you are effectively purchasing a second property, as you already own a flat. As such, you will have to pay the Additional Buyers Stamp Duty (ABSD).

This is 12 per cent of the condo price or value (whichever is higher) for Singapore Citizens or 15 per cent for Permanent Residents. This can be paid through your CPF.

You can apply for ABSD remission later, if:

  • You are a married couple, and at least one of you is a Singapore Citizen
  • You sell your flat no later than six months after the purchase of the private condo

In the meantime, you must pay the ABSD within two weeks of completing the Sale & Purchase Agreement.

This can be an issue to some buyers, as you need to ensure you have enough funds for both your down payment, as well as the ABSD. There’s also some added risk, in that you may be unable to sell your flat before the six-month time limit.

(Most property agents won’t have issues selling your flat in six months; but as the saying goes, never say never. If you’re worried about this, do drop me a message and I can advise you on making the sales process a smooth one).

As you can see, it might be convenient for some buyers to upgrade directly to a new EC instead, and skip over these stamp duty issues.

Piermont Grand, Executive Condominium by CDL

2. THERE IS AN INCOME CEILING FOR THE EC

Note that the income ceiling for ECs is $16,000 per month, for you and your co-borrowers.

If your income has risen significantly since you bought your HDB, you may have to consider private condos instead; these do not have an income ceiling.

3. YOU HAVE ANOTHER MOP TO FULFIL IF YOU CHOOSE ECS

ECs are like HDB properties for the first 10 years, which means they come with an MOP just like your flat had. You should be aware that, when you upgrade into a new EC, you are also accepting another five-year MOP.

This is seldom a major issue though. There’s a Sellers Stamp Duty (SSD) if you sell a property (including private condos) within the first three years, so you wouldn’t usually plan to sell so early anyway.

That said, the MOP might prove a hurdle to some buyers who have plans to rent out the whole condo unit (e.g. those who intend to move into a bigger flat with the in-laws, and fully rent out the condo). For these buyers, it may be better to go for a private condo so you can collect rental income sooner.

OLA Executive Condominium

4. AVAILABILITY OF CPF HOUSING GRANTS

One unique quality about ECs is that you can get CPF housing grants for them. In effect, this is the only “private property” you can buy with the government’s direct aid.

However, please remember there is a resale levy, if buying an EC where the land sale took place on or after 9 December 2013. You can check the amount of the resale levy at the point of your EC application.

The available grants are the Family Grant and Half Family Grant, with the total possible grant reaching up to $30,000 (you can see the grant details on the HDB website, they are dependent on your income).

There are no grants available for private condos.

5. LEASE ISSUES

An EC will be a 99-year leasehold condo, much like your previous HDB flat. However, private condos can be 99-years, 999-years, or freehold.

This is a consideration for those intending to hold over a long term. If you see the condo as part of your retirement or legacy planning, you may want to choose freehold units.

Whether or not freehold outperforms leasehold, in terms of investment, is too big a topic to cover here; but follow me on Facebook and I’ll explain that in an upcoming post.

Apart from these differences, another concern is what you can expect in terms of capital gain. Here’s a look at how the two compare:

Table 1: CPF accrued interest, compounded CPF accrued interest and amount to be refunded first 8 Years

Over a 15-year period, ECs (the blue line) have appreciated around 189 per cent on a per square foot basis; from $348 psf to $1,049 psf.

Private condos (the orange line) have appreciated just around 148 per cent, from $661 psf to $1,637 psf.

Note that this is partly because ECs are much cheaper at the outset, thus making it easier to show good appreciation (also, the data includes freehold condos, which are priced at a premium of around 20 per cent higher than leasehold counterparts).

Please bear in mind there are always exceptions (there are definitely private condos that outperform ECs), but what I want to show you is that – just because ECs are “hybrid housing” – that doesn’t mean they are “subpar” condos.

ECs are also fully built by private developers, and have the same range of amenities. But they come with the possibility of grants to boot, and tend to be priced lower (around $1,049 psf versus $1,637 psf, as you can see above).

So which should you pick, an EC or a private condo?

In light of the above, I’d suggest that:

  • You always prioritise location and your needs as a homeowner. This should take precedence over the other issues.
  • You crunch the numbers first and be especially mindful of having to cover the ABSD initially.
  • You don’t ignore affordability. ECs tend to be cheaper; and do remember you can sell your EC after five years*, if you want to upgrade again later.

*You do not need to wait 10 years for the EC to be privatised to get a good price. The only difference if you wait 10 years is that you can sell to foreigners and companies; but given that these buyers now face 20 to 25 per cent ABSD, this is a very small buyer pool anyway.

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