More Buyers Are Now Eligible for ECs: Why Might Developers Remain Cautious?

Will EC Prices Rise as the Income Ceiling Increases? Canberra Site Becomes the First Test Post-Policy Changes

Does raising the monthly household income ceiling for executive condominiums (ECs) mean more buyers will enter the market and prices will keep climbing?

The answer may not be so straightforward.

The EC site along Canberra Drive closes for tender on 1 October. This marks the first EC parcel to close after the tightening of EC measures in May and the raising of the monthly household income ceiling in August this year, with an estimated yield of 185 residential units.

Its tender outcome will serve as an essential bellwether for how developers evaluate the new policies and where future EC land prices are headed.

Market watchers estimate that the top bid for this site could come in as low as S$630 per square foot per plot ratio (psf ppr). Should the winning bid settle around this level, it would mark the lowest EC land price since September 2022.

Higher Income Ceiling Expands Eligible Buyer Pool

In August this year, the government announced an increase in the monthly household income ceiling for purchasing new ECs from S$16,000 to S$18,000.

The new ceiling applies to projects from land tenders closing on or after 24 August, making the Canberra Drive parcel the first site subject to this adjustment.

This means that households previously disqualified because their earnings exceeded the limit now have the opportunity to enter the market, effectively enlarging the pool of prospective buyers.

However, broadened eligibility does not equate to a commensurate jump in buyers' budgets, nor does it mean developers can simply ramp up selling prices.

On the Other Hand, Holding Periods and Payment Schemes Have Tightened

This parcel is also subject to the EC policy adjustments introduced in May this year, including the extension of the Minimum Occupation Period (MOP) to 10 years, the discontinuation of the deferred payment scheme (DPS), and an increased quota for first-time homebuyers.

These revisions carry contrasting implications:

While raising the income ceiling helps boost demand, the longer MOP and changes to payment schemes require buyers to weigh long-term living plans and cash flow readiness more carefully, dampening the appeal of ECs as short-term investment vehicles.

For developers, the crucial consideration lies in gauging whether new demand from newly eligible buyers can outweigh the hesitation among others deterred by the stricter conditions.

Consequently, market watchers expect developers to adopt a more cautious stance when assessing land bids and future selling prices.

New EC Price Growth Has Outpaced Budget Expansion for Some Households

According to URA Realis data as of 13 September, the median unit price of new ECs stood at around S$1,844 psf, up about 57% from S$1,175 psf in 2021.

Over the same period, the median quantum for new EC units climbed from roughly S$1.23 million to S$1.828 million, an increase of about 49%.

In comparison, reports estimate that following the income ceiling hike, buyers' maximum mortgage eligibility only rose from about S$1 million to S$1.13 million.

Based on the current median quantum of around S$1.828 million, even with the maximum loan amount, the shortfall remains close to S$700,000, which must be funded via cash and CPF savings.

While the actual loan amount still hinges on the buyer's age, loan tenure, existing financial commitments, and bank assessments, these figures underscore a practical reality: being eligible to buy does not guarantee having sufficient funds.

For young families and HDB upgraders, affordability remains the paramount factor dictating purchasing decisions.

Canberra Land Price May Ease; Admiralty Walk Will Be the Next Focal Point

Market projections for the Canberra Drive site place land prices between S$630 and S$700 psf ppr.

Recent EC land bids have generally surpassed S$700 psf ppr. If the highest bid comes in at just S$630 psf ppr, it would be close to the S$626 psf ppr fetched by the Lumina Grand site in September 2022.

Another EC parcel at Admiralty Walk, slated to close tender in December, is also subject to the new policy framework. Market analysts forecast its land rate could drop further to between S$530 and S$630 psf ppr.

If the final price lands near S$530 psf ppr, it would represent a multi-year low; one would have to look back to 2016 for the Rivercove Residences site, which transacted at S$355 psf ppr, to find a lower benchmark.

That said, these numbers remain estimates, and the actual tender results will determine the outcome.

Will Lower Land Prices Guarantee Cheaper ECs in the Future?

A softening in land costs could ease cost pressures on developers, but it does not automatically translate into a corresponding reduction in selling prices.

The pricing of future developments will also depend on construction costs, financing expenses, unit mix, and the prevailing demand and supply dynamics at launch.

For homebuyers, while land tender prices are worth tracking, one cannot directly conflate the land rate in psf ppr with the eventual residential launch psf price.

Interest Rate Movements Will Also Shape Buyer Decisions

Reports note that as of 25 September, the 3-month Singapore Overnight Rate Average (SORA) rose to 1.2251%, reaching its highest level this year.

Higher mortgage rates may prompt buyers to scrutinise their monthly instalments and cash flows more closely. Nonetheless, market observers believe that higher interest rates alone are unlikely to significantly dampen the appeal of ECs.

Existing EC projects have registered robust sales performance, drawing down unsold inventory to relatively lean levels. At the same time, several upcoming EC projects remain governed by the previous rules and are exempt from the latest revisions.

Thus, when comparing different projects, buyers need to verify not just selling prices and locations, but also the applicable eligibility rules, MOP requirements, and payment schemes.

The tender outcome for the Canberra Drive parcel will provide the first key benchmark for the EC market under the new policy regime. For families preparing to enter the market, the more crucial question after meeting eligibility is whether their down payment, monthly repayments, and long-term living plans align with their personal financial reality.