3 new tweaks to the Executive Condominium Scheme
In January 2013, MAS revised the Mortgage Servicing Ratio (MSR) to be capped at 30% of a borrower’s gross monthly income for loans granted by financial institutions for the purchase of HDB flats.
In June 2013, MAS introduced the Total Debt Servicing Ratio (TDSR) framework. The new frame work serve to cap a borrower’s total repayment liability to be not more than 60% of his monthly gross income. Hence assuming if a borrower draws an income of $10,000 a month, his total monthly debt commitments/repayments should not exceed more than $6,000 a month.
Since the introduction of MSR and TDSR, home buyers have skewed towards buying executive condominiums. Recent data have shown an increase in sales transactions, with developers selling 1240 executive condo units in Q3 2013 as compared to 932 units in Q2 2013, representing a substantial increase of about ~33% over the previous quarter.
Just as demand for executive condos seems to be ballooning, the Ministry of National Development yesterday announced 3 new tweaks to the executive condominium scheme.
1) Mortgage Servicing Ratio for Executive Condos
Effective today 10 Dec 2013, for EC units bought directly from developers, applicants getting a loan from financial institutions will have its mortgage servicing ratio capped at 30% of their gross monthly income.
The Total Debt Servicing Ratio (TDSR) framework was previously used for the assessment of an applicant’s EC home loan application.
This new measure is widely seen to affect and cool a developer’s selling price as a regular couple with the max combined ceiling income of $12,000 to qualify for an executive condo unit would only be able take up a max bank loan of $719,103 over a 25 years tenure.
Working backwards on an 80% loan to value ratio, the max purchase price the couple would be able to afford is $898,878. Buying any units above the max ceiling price of $898,878 would entail the couple forking out extra cash for the price difference.
In comparison to the TDSR framework, a couple with the max ceiling income of $12,000 with zero liabilities would qualify for a max bank loan of $1,603,403 over a 30 years tenure. The max purchase price of the flat the couple would be able to afford on an 80% loan to value ratio would be $2,004,253.
The new MSR framework for executive condominium would effectively curb bank lending and reduced the maximum amount of loan a bank or financial institution can grant to a couple by over 55% (assuming max income of $12,000 with zero liabilities).
2) Introduction of the HDB Resale Levy to the Executive Condominium Scheme
Under the HDB resale levy scheme, home owners who have previously bought a flat from the HDB or have taken up a CPF housing grant will have to pay a resale levy of between $15,000 to $50,000 when they buy the next HDB flat.
The purpose of the resale levy is meant to reduce the amount of subsidy a couple enjoy on their second subsidized flat to maintain a fair allocation of the public housing subsidies between first and second timers.
For more information relating to the resale levy, you may refer to http://www.hdb.gov.sg/fi10/fi10322p.nsf/w/SellFlatResalelevy?OpenDocument
3) Reduction in cancellation fee from 20% to 5% of the purchase price
Effective to home buyers for land sale projects taking place since yesterday 9 Dec 2013, the cancellation fee for EC buyers will be reduced from 20% of the purchase price to 5%.
This is consistent to the cancellation penalty applicable for HDB Build-To-Order (BTO) flats. Home buyers will now pay 15% lesser cancellation fee charge in the unfortunate event that they do not proceed with the EC purchase.
In summary, the new MSR limit will capped the amount of financing home buyers would be able to secure while the new applicable levy add as some form of additional buying "taxes" onto the executive condominium segment.
Analysts expect developers to come out with smaller units but with most EC buyers being family upgraders with kids, would they bite for a smaller home?
We have MSR in January for HDB, TDSR in June for private residential, commercial & industrial and it looks like the executive condominium will have its share of the cake just in time for Christmas.
Related links:http://www.mortgagesupermart.com.sg/blog/18-q3-2013-singapore-real-estate-statistics-mortgage-supermart-singapore-1#sthash.xvH0c9eS.dpufRelated Links: