Housing woes: can I afford an EC?

The fiancé and I have been applying for BTOs for a year now and till date have yet to be successful. We managed to get a number one time but even then our number was twice the number of available units which is as good as not getting any number. It’s been a bleak and demoralising journey to say the least. As such we decided to explore other options, namely Executive Condominiums (ECs).

What can we afford?

We did a quick calculation of our finances and it appears that we would be able to afford an EC up to $900k. DBS has this pretty nifty MyHome planning tool that can help you to work out your affordability and loan eligibility. There’s even a cashflow timeline to help you visualise and anticipate how much to pay up and when. Here are a couple of screenshots after inputing our details.

Between $900k to $1mil is still possible as we have additional income and bonuses which I did not include in the planning tool to keep on the conservative side. But it will be a bit of a stretch and any higher than that is just biting off more than we can chew. Bearing this mind, we decided to check out Parc Central Residences at Tampines to explore our options.

Unfortunately when we tried to obtain an in-principal approval on the day of our visit to the showflat, our loan eligibility was reduced due to a couple of reasons related to my fiancé’s employment situation and we were not able to afford the unit that we were eyeing. I did not want to downsize to a smaller unit which was within our budget as I felt that we were already making a few compromises and it was not worth it.

Cash is not king, cash FLOW is

With an EC, even if we can afford the downpayment upfront, we may struggle with the mortgage repayments and be so stressed over meeting them that we end up forsaking other parts of our life. Whereas if we opted for a BTO flat which is half the price of the EC, sure we will have to pay more for renovation and furnishings, but at least we can service the mortgage comfortably and sleep more soundly at night without worrying about what happens if one of us loses our jobs.

The whole “oh but it is an EC which will become private and is more fancy than a HDB flat” argument does not sway me. I would rather stay in a smaller house that is under my means and have free cash flow to continue to fund my current lifestyle and investments than stay in a house that requires me to eat grass every day. I don’t think it’s a worthy trade-off for both my financial and mental health.

“But you can earn more from an EC than an HDB flat and sell one and buy two!”

Yes some evidence has shown that most of the times ECs are profitable. And I know many couples aspire to “sell one and buy two” so that they can receive additional income from the rental of the second unit and kickstart this process by purchasing an EC instead of a HDB flat.

But they overlook the fact that there are other ways of getting rental income. (And also the not so picture-perfect experiences of dealing with tenants from hell)

The cash that we would save from a smaller mortgage could be invested elsewhere to generate income instead of being locked up in an overpriced property. In fact, if getting rental income is so pertinent, we can consider purchasing a commercial property instead of another residential property so that we would not be liable for ABSD.

The only reason that compelled us to explore the EC option is because it will be ready sooner than a new BTO flat will be and it is better to own the property asap regardless of HDB flat or EC so that we can reach the MOP sooner than later. Consider the latest BTO launch. The flats would only be ready around 2025 at the earliest. If we went for the EC now, we would have served more than halfway through the MOP of the EC before the BTO flat is even ready. The time value of money is what is valuable here and it’s an important consideration in the homeownership planning process.

If getting a place asap is the concern then why not consider resale?

We are not keen on resale flats due to the price of the ones that we were looking at coupled with the additional renovation costs required. Furthermore, there is unlikely any capital appreciation to second owners of the flat. We are also not THAT much in a rush as our wedding is still awhile away. I guess it gives us more time to build up our cash savings in the mean time.

Money matters and couple matters

The whole experience was a good exercise and sobering reminder to what we prioritise as couple. As much as we would love to be able to have a place we can call home soon, purchasing a property is not a process to be rushed and definitely not worth getting over-indebted for. I’m thankful that my fiancé and I are on mutual grounds at where we stand and that we can be so honest and transparent with each other. For now, keeping our fingers crossed for good news from HDB for our latest BTO application! Wish us luck!

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