HOUSING MATTERS
Is An Executive Condominium (EC) A Better Residential Property Or Investment Property?
You wish to not pay a lot for a home but you do want to have some extent of luxury. Thus, like some Singaporeans, an Executive Condominium (EC) might be an answer to your wishes.
But at the same time, some people do want it to be an investment property. Buying it and then eventually selling it.
Wondering whether you should stay or sell an EC? Let’s debunk which is a better option.
Limitations of an EC
- Time
Once you purchase an EC, you should know of the Minimum Occupancy Period (MOP). That means you must stay at the property for at least 5 years prior to selling it to another Singaporean or a Permanent Resident.
Then if you want to sell it to a foreigner, you would need to wait for 10 years. Therefore, there are limitations in terms of selling the house.
- Money
You also should know that you could only finance your home with a bank loan only. In other words, you do not have the option of opting for a HDB Loan.
Hence, do not expect a fixed monthly mortgage payment. If the interest rates are high, make sure you have that extra cash to pay for it.
Maintenance Fees are something that is expected for any type of property but since you might be opting for an EC thus, expect a higher maintenance fee compared to a HDB Flat.
There they are, the certain limitations of an EC. Without a doubt you would already know the pros of buying an EC, hence it is better to circle the cons or limitations when comparing.
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Living in one
- The Reason, Ability and Reality
You first have to ask yourself why do you even want to purchase an EC in the first place. One major reason is the increase or maintenance of your lifestyle.
Security, amenities or even location in certain situations are certain things that you are paying extra for. You can extra soundly since you know there are security guards are doing their scheduled checks. You only need to walk a few steps to the gym. And any other advantages of staying in an EC.
You do have other obligations or responsibilities to take care of. Not to forget, unexpected setbacks in life. Thus, if you are really prepared and equipped to fulfill those other things in life, then living in an EC is an option you are able to take.
But in other hands, if you are not prepared for those things, then you might want to review your finances and reconsider whether living in an EC is really a good option.
At the end of the day, you would need to pay off your mortgage and that is one ultimate goal for a lot of people. If you can pay off your mortgage and equally be able to prepare for your retirement or be financially “strong” when facing a setback, it is a sign that you are doing it right.
- Other Expenses
Do take note of expenses such as Maintenance Fees, Utility Bills or Transportation, as those things do link with living in an EC.
Yes, there is a Mortgage Servicing Ratio (MSR) that is capped at 30%, but those expenses that are mentioned above is not inside it. That means indirectly you may be spending more than 30% of your monthly salary on the property.
So with the increasing lifestyle comes with the increase in expenses in life. The question is, can you really afford it?
As an investment
- Opportunity Cost
The fact that it takes 10 years in order for an EC to be a private property means that you have to equally pay 10 years worth of mortgage first.
In that sense, the money that you have used up for the mortgage repayment could not be used for some other forms of investment. You would perhaps earn a better return elsewhere or you could really diversify your investment portfolio.
Instead, what you will be doing is putting all the eggs into the one really big basket. Have you ever thought if something happened to the basket and all the eggs are no longer good anymore?
- Potential Sellers
In order to earn a profit, you have to sell. And in order to sell, you need a seller. Thus, let’s see it from the perspective of a seller.
You can either sell to another Singaporean or Permanent Resident after 5 years. But why would they want to buy a used property and not buy a new one instead?
Without a doubt, you will be selling at a price higher than your purchase price. And one would wonder why should I buy a pricey property with less than 99 years left on the lease.
Next, foreigners. You would realize and see that more and more foreigners are coming into the country and there is no problem with traffic there.
But if you put yourself in the shoes of a foreigner, you would want to have a temporary place to stay if you do not intend to be a Permanent Resident here. Therefore, they are more interested in renting rather of buying.
All these are perspective. If there is a demand for your property, then you have the leverage of selling it at your preferred price point. But if there is a lack of demand, therefore you will have a hard time in cashing in your EC.
The Creation of an Executive Condominium
An EC is in between a HDB Flat and a Private Condominium. Thus, it is neither here nor there.
It is an act from the government to somehow provide that kind of residential to certain groups of people. Thus, it does mean that an EC is indeed a residential property. They are helping us in achieving our wants or to some, a dream.
The restrictions or in particular the MOP is a sign that it somehow should be only for residential use.
READ ALSO: What Does It Mean By Leaving $20,000 In Your CPFOA When You Buy A House?
Managing expectations and planning long-term
But like a HDB flat, there are people still taking an EC as an investment property. It is not wrong at all and it is all about the decision you take.
It can be a solid investment strategy or just pure speculation. Thus, if the investment does not go well, you have to make sure you have an alternate plan in accumulating your money.
As high as we want our selling price to be, sometimes it is not within our control. It is either the market, the location, the supply, and demand, and the list goes on.
The underlying message is that you need to manage your expectations on this and be prepared for the worst.
Your dream home can be your largest liability if you do not manage it properly.
That is the end of the article and hope the information is useful. Do share it with your friends and families. Till next time.
Disclaimer
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
