Buyers in tizzy over possible EC tweaks

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#1
This is a new word to me - tizzy! Haha.

The Straits Times
www.straitstimes.com
Published on Apr 30, 2013
Buyers in tizzy over possible EC tweaks

Uncertainty over subsidies after minister hints at scheme changes

By Charissa Yong

POSSIBLE changes to the executive condominium (EC) scheme, hinted at by National Development Minister Khaw Boon Wan recently, have got buyers and developers worried.

Some are bracing themselves for a cut or even removal of Government subsidies for first-time applicants. Others predict the uncertainty could drive up demand for new launches.

Last Thursday, Mr Khaw told participants at an Our Singapore Conversation dialogue that the EC scheme cannot continue as it is.

He did not give details, but noted that EC owners make more profit upon resale than the average flat owner.

"Because their upside in the current property market is so big, the subsidy they earn getting an EC compared to the subsidy that a lower-income family, through a three-room, four-room or five-room BTO... there's a substantial gap," he said.

The minister's comments have made first-timers - like public relations executive Rosemary Lee, 26, who is considering buying an EC in the future - uneasy.

"The subsidies are pretty decent and would be a load off our shoulders, given the rising cost of living," she said.

The EC scheme was launched in 1996, targeted at the "sandwiched" class of home hunters who were priced out of private property. Today, ECs have an income ceiling of $12,000, compared to $10,000 for BTO flats.

First-time EC buyers currently receive a grant of between $10,000 and $30,000, while BTO buyers can get up to $60,000 if they earn below $1,500 a month.

Developers who spoke to The Straits Times felt that Mr Khaw was signalling a potential cut in subsidies. The next EC launch in June - Forestville in Woodlands - could also see greater interest.

Said EL Development's Lim Yew Soon: "Whenever policies change or are likely to, the immediate launches will have the biggest benefits. There's a good chance that buyers may snap up existing ECs to ensure they still receive the grant."

Mr Lim added that developers could also be more cautious and moderate their bids for EC land sites, such as upcoming ones in Punggol Drive and Yuan Ching Road, Jurong.

Meanwhile, property firm GPS Alliance chief executive Jeffrey Hong said scaling back subsidies would hit first-time buyers, which ECs are meant for, the hardest. He also pointed out that the dust had yet to settle in the wake of latest measures aimed at bringing EC prices down.

In January, the size of an EC unit was capped at 160 sq m and dual-key units, which have two entrances, were restricted to multi-generational families.

ECs are marketed and built by private developers. Buyers are subject to a minimum occupation period of five years, but after 10 years, their units become private property and can be sold to foreign buyers.

"It's not right to just look at the profit we make," said engineer Eddy Lau, 40, whose $900,000 EC unit will be ready in 2015. "We also pay more in interest over the years for the EC. For us who are sandwiched, ECs are the only option to upgrade."

Propnex chief executive Mohamed Ismail said that while EC buyers do profit more, they also pay more cash upfront and take bigger loans with interest rates more vulnerable to property market crashes.

Readers also weighed in on straitstimes.com, where a user known as Antono Lee wrote: "People who bought an EC took a higher risk than people who bought a 3-room (Build-to-Order flat). Of course it's only fair that when the market is up they earn a bigger gain and when market is down they suffer a bigger loss."

But lawyer Tan Heng Khim, 53, who had quizzed Mr Khaw about the EC scheme at the dialogue session, felt differently.

"It's not right that buyers who are able to purchase a new EC unit at a million dollars should be getting subsidies. I think it's fair for the Government to relook the scheme," he said.

charyong@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
(30-04-2013, 08:37 AM)Musicwhiz Wrote: This is a new word to me - tizzy! Haha.

tizzy by dictionary is "a highly excited and distracted state of mind". Big Grin

http://www.merriam-webster.com/dictionary/tizzy
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#3
Thanks! I learn something new everyday! Big Grin

I would take it that "tizzy" is a more extreme version of "dizzy". Tongue
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#4
Let's consider the following:

- HDB BTO first time purchase for the Mar 13 launch in Compassvale Cape.
- 4-rm after grant price of $269k (http://esales.hdb.gov.sg/hdbvsf/eampu03p...page_1829/$file/about0.htm)
- Takes a 20 year 80% HDB loan at 2.6% interest

After 10 years, assume the HDB is worth between $350k-$500k. Total interest paid would be about $45k. Profit is between $36k-$186k.

- EC first time purchase for Waterbay EC
- According to this website (http://sengkangec.com/waterbay-price/), 4-rm starts at $823k. Assume a grant of $30k for after grant price of $793k
- Takes a 20 year 80% private loan at 1.25%, 1.75%, 2.5% thereafter

After 10 years, the total interest paid is about $110k. The valuation of the EC increases as it is rezoned to private condo (+20%?), and the market moves up another 20%, profit = $823k x 1.2 x 1.2 - $110k - $793k = $282.12k

If the market is flat, profit = $823k x 1.2 - $110k - $793k = $84,600.

If the market drops by 20%, profit = $823k x 1.2 x 0.8 - $110k - $793k = - $112.92k

I'm not calculating the IRR and some of the figures here are plucked from the sky. But it seems to me that buying a BTO is still better than buying an EC given the risk and rewards and not to mention the opportunity cost of investing the money elsewhere. Are people simply jealous that EC buyers are making more money in a rapidly rising market? Is it fair to assume that just because you bought an EC, you will definitely make a lot of money? To me, their bigger profits is simply the result of a bigger bet in a rising market. Fair and square.

However, I'll be very happy if more people throw their money at ECs if Mr Khaw changes the policy. Then maybe I can find a nice HDB at a better price..

Hope to hear your comments. Big Grin
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#5
EC is the result of catering to the sandwich class; and the sandwich class is created because of household income ceiling imposed on BTO. Therefore it is quite clear to me that all these nuggets of information will lead to the removal of income ceiling for BTO. Why not since HDB policy is now to hold a buffer of flats.
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#6
base on basic supply and demand + recent restrictments from govt, am I right to say that in the near future, first time buyers will have easier access to their first home? I.e. Cheaper homes and shorter waiting time?
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#7
I advise you to think carefully on the 269k BTO and compare it with the current resale prices and put much thought into the appreciation of HDB from today's prices. Do not forget BTO is much smaller and resale flats are much bigger. If the BTO you mentioned appreciates between 350k to 500k, what happen to the resale prices? then condo prices?

For the EC you mentioned, yes it is valid as it depends on risk on entry. You are assuming it appreciates 44% after 10 years upon privatization. It depends on the demand and affordability of OCR condos during then as well. The rising prices and demand could be accredited to the ability to subletting HDB and low interest rates.

I dislike the part where more people say HDB should be a home more than asset as it directly means our old folks do not have ability to unlock value in their HDB home when they are old. Then again it is agenda based. If it is more home, people can get cheaper homes and granted entry to second/third investment homes quicker provided there is no 10 years mop and just 5 years mop. At the same time, people can sublet their homes for the investment property. My opinion is more home than asset will push private property prices higher.

(30-04-2013, 11:27 AM)grubb Wrote: Let's consider the following:

- HDB BTO first time purchase for the Mar 13 launch in Compassvale Cape.
- 4-rm after grant price of $269k (http://esales.hdb.gov.sg/hdbvsf/eampu03p...page_1829/$file/about0.htm)
- Takes a 20 year 80% HDB loan at 2.6% interest

After 10 years, assume the HDB is worth between $350k-$500k. Total interest paid would be about $45k. Profit is between $36k-$186k.

- EC first time purchase for Waterbay EC
- According to this website (http://sengkangec.com/waterbay-price/), 4-rm starts at $823k. Assume a grant of $30k for after grant price of $793k
- Takes a 20 year 80% private loan at 1.25%, 1.75%, 2.5% thereafter

After 10 years, the total interest paid is about $110k. The valuation of the EC increases as it is rezoned to private condo (+20%?), and the market moves up another 20%, profit = $823k x 1.2 x 1.2 - $110k - $793k = $282.12k

If the market is flat, profit = $823k x 1.2 - $110k - $793k = $84,600.

If the market drops by 20%, profit = $823k x 1.2 x 0.8 - $110k - $793k = - $112.92k

I'm not calculating the IRR and some of the figures here are plucked from the sky. But it seems to me that buying a BTO is still better than buying an EC given the risk and rewards and not to mention the opportunity cost of investing the money elsewhere. Are people simply jealous that EC buyers are making more money in a rapidly rising market? Is it fair to assume that just because you bought an EC, you will definitely make a lot of money? To me, their bigger profits is simply the result of a bigger bet in a rising market. Fair and square.

However, I'll be very happy if more people throw their money at ECs if Mr Khaw changes the policy. Then maybe I can find a nice HDB at a better price..

Hope to hear your comments. Big Grin
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#8
If hdb is to be a home. It should be used as a home. A home is a home. It's not meant to be sublet for any monetary gains.
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