EC changes ‘will lead to lower land bids’

SINGAPORE — Developers are expected to be more cautious in bidding for land for Executive Condominiums (ECs) as the latest changes to the hybrid public-private housing scheme will likely dampen demand for such homes and cause prices to fall.

Analysts said that out of the three measures announced by the Ministry of National Development on Monday, the application of the Mortgage Servicing Ratio (MSR) to EC housing loans is the key change that will help to achieve the Government’s goal of a “stable and sustainable” market.

“The MSR is a little bit more serious because it is basically limiting the purchasing power of the buyer and curbing the loan amount people can take,” said Mr Nicholas Mak, Executive Director of Research and Consultancy at SLP International Property Consultants.

The MSR, which caps housing loans for EC units at 30 per cent of the buyer’s gross monthly income, was previously only applicable to Housing and Development Board (HDB) flats. Besides the MSR, the two other changes to the EC scheme are the reduction in cancellation fees from 20 per cent to 5 per cent, and the requirement that second-time applicants pay a resale levy similar to those who buy HDB Build-To-Order flats.

Analysts said while the change in cancellation fee seems favourable, the net impact of the three changes would still be “negative”, which will result in developers putting in more prudent bids for EC land.

“At the current trajectory, if the Government doesn’t come up with this set of measures, EC prices are going to reach S$900 per square foot or even exceed that, which is fairly ridiculous because ECs are supposed to meet the housing needs of the sandwiched class,” said Mr Mak.

PropNex Realty Chief Executive Mohamed Ismail said the MSR and resale levy “will work in tandem to equalise the playing field between public housing and ECs, and will prompt developers to adjust their land bid prices to take into account a potential buyer’s purchasing ability.”

The Government last month released three EC sites from its land sales programme that can be developed into about 1,680 EC units. The sites in Canberra Drive and Anchorvale Crescent are launched from the Confirmed List and the tenders will close in January and February respectively. The Choa Chu Kang Drive site is released from the Reserve List and the tender will be triggered if a developer commits to bid at a minimum price acceptable to the Government.

Developers, upbeat about the demand for ECs, have been bidding aggressively for EC sites in recent months and pushing up prices of such units. An EC land parcel at Yuan Ching Road fetched a record price in July.

However, the new measures, coupled with the S$12,000 household income cap for EC applicants, may lead to developers rethinking their strategy, said Associate Director of CBRE Research Desmond Sim.

“EC pricing will always have a glass ceiling. Developers cannot price it too high, it has to be more affordable, more palatable and at the right size for the market to absorb. So developers have to be more creative either in size or managing their costs and profit margins,” said Mr Sim.