EC financing – Step by Step Guide

EC Financing

Table of Contents

Introduction

Purchasing a new EC is a big financial decision in our lives. For many of us, this could be the first time we are writing cheques to purchase something with a price tag greater than a million dollars.

While it may seem intimidating, let’s break down the challenge into smaller components and tackle it. With some determination and rigour, we should eventually build a better home for our families.

Focus of this article

In this article, we dwell specifically into the topic of EC financing, addressing all the information and potential queries you may have regarding the direct and indirect cost of purchasing an EC, how you can fund your EC, EC loans and payments schemes.

We see this as part of a multi-part EC series that seeks to cover everything a new EC buyer needs to know in his or her research. Feel free to check out some of the other articles in line.

A little bit about ourselves

To assure you that you will not be wasting the next 5 mins reading generic information sourced for the interweb, allow us to introduce the authors behind this article.

We are a team of full time realtors that started off as EC owners ourselves. We experience first hand the financial payoff of owning an EC and eventually leveraging on the sale of the EC to purchase two private properties.

While property investing is a passion, we now turn our attention to using our experience and knowledge to help more property owners get their hands on an EC.

We have since assisted over 86 clients in purchasing EC across the island. On average our clients experience capital gain greater than $350k.

Drop us a text if reading is not your thing, we will give you a run down in less than 10mins.

Understanding the cost involved in purchasing an EC

To understand how to finance an EC, it is important to first be aware of all the costs involved in purchasing an EC. Beyond the purchase price of an EC, there are several transactional costs that need to be accounted for as well.

Purchase price of an EC

This forms the bulk of the overall cost of purchasing an EC. To give you a sense of what’s to come, let’s use the recent launch of Altura EC and Lumina Grand EC’s pricing as reference.

Altura EC

  • A 980 sqft, 3 Bedroom unit will cost $1,502,000 at $1,594 psf
  • A 1206 sqft 4 Bedroom unit will cost $1,739,000 at $1,500 psf

Lumina Grand EC

  • A 969 sqft, 3 Bedroom unit will cost $1,405,000 at $1,494 psf
  • A 1259 sqft, 4 Bedroom premium will cost $1,816,000 at $1,486 psf

Buyer Stamp duty

Aside from the purchase price of the EC, the next big cost item on the list is the buyer stamp duty. For the uninitiated, for all property purchase transactions in Singapore, there will be buyer stamp duty levied.

We will provide a quick short cut calculation method to help you get a back of the napkin estimation for the buyer stamp duty to be incurred. For the exact stamp duty to be incurred, drop us a text and will help you work out the exact to be incurred for your EC purchase.

Back of napkin estimation for stamp duty

  • If EC price <= $1 million – Purchase price x 3% – $5,400
  • If EC price between $1,000,001 to $1.5 million – Purchase price x 4% – $15,400
  • If EC price between $1.500,001 to $3.0 million – Purchase price x 5% – $30,400
  • If EC price above $3.0 million – Purchase price x 6% – $60,400

Legal Fee

A necessary fee in all property transactions, legal fee will range between $2,500 to $3,000. For rare cases when there is no loan involved, there will normally be a reduction of around $500.

Valuation fee

There will also be a valuation fee of not more than $600.

Agent commission

When it comes to purchasing a new launch EC, there will be no requirement to pay any agent commission. We will be remunerated by the EC developer for our advisory services to buyers.

Resale Levy

Resale levy is one of HDB’s suite of tools to ensure a fairer allocation of housing subsidies. It targets homeowners that have previously received subsidies from HDB and is looking to apply for a second subsidised property purchase or a second round of subsidies.

Who is liable to incur resale levy when purchasing EC ?

If you currently are a owner of a BTO, DBSS purchased directly from HDB or you have received any subsidies from HDB for the purchase of your resale HDB. You will be liable to pay resale levy when purchasing a new launch EC.

Mode Of Payment

Resale levy can only be paid in cash, cpf or bank loan cannot be used to pay for resale levy.

When do you need to pay resale levy

If you have already sold your HDB subsidised property, you will be required to pay your resale levy on the EC booking day.

If you are looking to hold on to your subsidised HDB or BTO, while awaiting your EC completion, you will have to pay for the resale levy using the sale proceeds after you have sold your HDB.

The resale levy will automatically be deducted from your sales proceeds by HDB.

Amount Of Resale Levy To Be Paid

The quantum of resale levy to be paid is dependent on your HDB flat Bedroom type.

First subsidised housing type (Subsidised HDB Flat Sold on or After 3 March 2006)Resale levy amount for householdsResale levy amount for singles grant recipients
2-room HDB flat$15,000$7,500
3-room HDB flat$30,000$15,000
4-room HDB flat$40,000$20,000
5-room HDB flat$45,000$22,500
Executive Apartment$50,000$25,000
EC$55,000

Funding source for EC

Now that we have covered all the cost involved in purchasing an EC. Let’s discuss all the funding source available to finance your EC purchase

Cash

Cash is a mandatory requirement in financing your EC downpayment. As part of MAS loan to valuation limits, it stipulates a minimum cash requirement for your EC downpayment. This serves as a guard rail to prevent property buyers from overleveraging by financing their purchase with pure CPF and bank loan.

Assuming you are eligible for a 75% bank loan to finance your EC purchase. The first 5% booking fee has to be paid in cash via a cheque. And the remaining 15% can be funded with cash or CPF

On the flip side if you are only eligible to a 55% loan to valuation ratio, due to your age or loan tenure you will have to pay a minimum 10% cash on the purchase price or property as part of your downpayment.

Without elaborating, all the cost components detailed above can be paid in cash.

CPF

After fulfilling your minimum cash requirement you will be able to use your CPF to fund the remaining 15% down payment.

CPF can also be used to fund your stamp duty, legal fee and mortgage payment. But note, CPF cannot be used to fund your resale levy.

EC CPF Grant

If you have not previously purchased a subsidised property like BTO directly from HDB or have not receive a HDB grant before, then you can look to the EC CPF grant as a additional funding source.

Grant Eligibility

For more details about EC grants refer to article link above, but as a high level overview, the following are key criterias for grant eligibility.

  • You will need to be a first time grant applicant
  • You must be a Singapore citizen or PR
  • You must be age 21 years and above
  • You must be applying with your family, fiance or fiancee, or child under your custody
  • Grant is not applicable to Singles applying under the joint single scheme or the orphan scheme

Grant Amount As Follow

Average Gross Monthly Household IncomeFamily Grant - Both applicants are Singapore citizensFamily Grant - 1 Singapore citizen + 1 PR"Half Housing Grant - First timer + Second Timer "
$10,000 or lower$30,000$20,000$15,000
$10,001 - $11, 000$20,000$10,000$10,000
$11,001 - $12,000$10,000nil$5,000

CPF Grant Usage

CPF grant can be used as part of the EC downpayment or used to lower the overall mortgage payment. It cannot be used to pay for stamp duty or legal fee

EC Loan

As a primer, HDB loan cannot be used to finance an EC, you would have to turn to a private bank loan to finance your EC purchase. For those familiar with HDB loan financing, this means that you will not be able to take 80% for your EC purchase, you will be looking at a maximum private bank loan quantum of 75%.

Maximum EC loan quantum

As we venture into the realm of private bank loans for EC, it is important for us to get acquainted with the MAS loan to valuation (LTV) ratio for private bank loans.

To determine whether you will be eligible for a maximum 75% LTV ratio or the 55% reduced LTV ratio. You would have to consider two variables, your loan tenure and you and your spouse age.

In short, if you are looking to take out a loan tenure that extends beyond 30 years, you will not be able to take the full 75% LTV, but step down to the 55% LTV. And if loan tenure in addition the income weighted age of you and your spouse exceeds 65 years, your would also be forced to take up a 55% LTV instead of the full 75% LTV.

Each tier of LTV limits comes with different mandatory cash requirements. For the maximum 75% LTV, you will only be required to pay a minimum 5% cash. For the 55% LTV you will be required to pay a minimum 10% cash.

EC Loan to Valuation Limit
Loan TenureUp to 30 YearsUp to 30 Years31 to 35 Years
Sum of Tenure & Income weighted age of Borrower (at application)lesser than or equal 65 Yearsgreater than 65 Years
Loan-To-Value (Max. Home Loan)75%55%55%
Min. Cash Down Payment5%10%10%
Next Payment (Cash or CPF)20%35%35%

MSR ratio

Given that you are eligible for the full 75% LTV ratio, there are two other MAS stipulated threshold’s that will restrict you from taking up a maximum 75% loan on your EC purchase.
Enter the mortgage servicing ratio (MSR), this is a regulatory threshold that is commonly applied to HDB flats. EC being a hybrid between a HDB flat and private property is subjected to both the MSR ratio and the total debt servicing ratio (TDSR).

The MSR ratio stipulates that your monthly mortgage payment must not exceed 30% of your monthly income.

Assuming you are looking to take a 75% loan quantum on a $1.5 mil EC which will amount to a loan size of $1,125,000. At a 3% interest rate, you will be looking at a monthly mortgage of $4,743.

If your combined household income is only $10,000, your MSR ratio will be 47%, which exceeds the stipulated 30% threshold. In this case you would have to reduce your loan size to only $581,804 to fulfil the 30% MSR threshold.

TDSR ratio

As mentioned above, aside from the MSR ratio, you would also have to adhere to the total debt servicing threshold. The TDSR ratio takes into account all other recurring monthly debt obligations like car loan, credit card loan, etc, on top of your monthly mortgage payment and stipulates that it should not surpass 55% of your monthly income.

Bridging Loan

Bridging is another financing source that you will need to be aware of, particularly if you have yet to sell your current HDB and are looking to purchase an EC at the same time.

In many cases of EC purchase, due to the strict MSR threshold, the maximum loan quantum may not be able to cover the 80% remaining payment for the EC after the initial 20% down payment by cash and CPF.

You would be looking to either your cash savings or your sales proceed from your current HDB flat to patch this gap.

In the situation whereby, the proceeds from the sale of your EC is unable to be disbursed in time for the payment of your EC. You would turn to a bridging loan to temporarily finance the payment and repay the bridging loan after you receive the sale proceeds.

Refer to the following article for a full write up on EC bridging loan.

Payment Schedule

Unlike a resale HDB or a resale private property, a new launch EC has yet to be constructed. Hence, for the remaining 80% payment after the initial 20% cash and CPF down payment, you will enjoy a progressive payment schedule that ties in with the different stages of construction completion.
There are generally two payment schemes that you can choose from when purchasing your EC.

Normal progressive payment scheme

This will be the default option that EC buyers not holding on to an existing hdb flat will take up. Assuming you are eligible for 75 percent loan, You will first pay 5 percent on the booking day and 15 percent down payment upon exercising option.

The remaining 80% payment will be paid in phases base on development construction

Deferred payment scheme

Deferred payment scheme is an option that caters for HDB owners looking to hold on to their existing HDB flat when purchasing another EC.

You will only need to pay for the initial 5 percent booking fee and 15 percent down payment, the remaining payment will all be deferred till the property TOP.

A comparison of the progressive payment scheme and deferred payment scheme

Payment Schedule - Deferred Payment Scheme vs Progressive Payment Scheme
Stages of Construction CompletionTimelineNormal Progressive Scheme (% of Purchase Price)EC Deferred Payment Scheme (% of Purchase Price)
Booking of unitOption date5% (cash)5% (cash)
Payment of resale levy (when applicable) If the 1st subsidised flat already been sold. Pay at the HDB Branch, before EC Buyer signs the S&P. If the 1st subsidised flat is not sold yet, pay upon the sale of the 1st subsidised flat, within six mths from the date of TOP To be determinedTo be determined (cash)To be determined (cash)
Upon signing of Sales and Purchase Agreement (S&P)9 weeks from option date15% (cash or cpf)15% (cash or cpf)
Payment of buyer stamp duties2 weeks from signing S&PTo be calculated amount defers based on property value (cash of CPF)To be calculated amount defers based on property value (cash of CPF)
Completion of foundation work6 - 9 months10% (out of 10%, 5% to be funded by cash or CPF, 5% to be funded by cash or cpf or bank loan)0%
Completion of reinforced concrete framework6 - 9 months10%0%
Completion of brick walls3 - 6 months5%0%
Completion of roofing/ceiling3 - 6 months5%0%
Completion of electrical wiring internal plastering, plumbing and installation of door and window frames3 - 6 months5%0%
Completion of car park, roads and drains servicing the housing project3 - 6 months5%0%
Notice of vacant possessionTOP25%65% ( out of 65%, 5% to be funded by cash or CPF, 60% to be funded by cash or CPF or bank loan)
Legal completion dateCSC15%15% (cash or cpf or loan)

Case Study for EC financing

We have now completed running through the 3 key components of financing your EC purchase. It will be a good time to illustrate the entire process with an example.

Context

  • Jason and Rachel currently owns a 4 bedroom BTO bought directly from HDB
  • Both Jason and Rachel are aged 35 years old
  • They have got a combined household income of 16k

Objective

  • They are looking to purchase a new launch EC unit at Altura EC
  • It is a 980 sqft 3 bedder unit priced at 1.5 mil

Let’s work out the entire financing process for their EC purchase

Assuming the couples are eligible for a 75% loan quantum

The initial down payment will be as follow

The Couple would have to make an initial booking fee of 5% of $1.5 mil amounting to $75,000. Two weeks from the exercise date, they will have to pay the stamp duty of $44,600

Resale Levy

Given that Jason and Rachel purchased their BTO directly from HDB and they are now looking to purchase a EC, their 2nd subsidised housing from HDB.

They will need to incur $40,000 as resale levy. As they have yet to sell their property they are only required to pay this resale levy upon the sale of the existing property.

Remaining payment to be funded by loan

Maximum loan quantum

Based on the 75% LTV ratio, they are eligible to loan a $1,125,000 loan. But due to MSR and TDSR threshold, both Jason and Rachel have a combined income of $16,000 and assuming they have got no other loan obligation. Their maximum eligible loan quantum is only $930,887.

There is a gap of $194,113

Bridging loan

The gap of $194,113 will be funded by a bridging loan and will be repaid using the proceeds from the sale of their existing 4 bedroom BTO.

Payment Schedule

For the payment schedule, they opt for deferred payment scheme and will only be paying the remaining payment upon TOP of the property.

Final words

This marks the end of our complete guide to EC financing, we hope it gives you a good idea what it takes to finance your EC purchase.

FAQ

How much is a downpayment on EC?

The downpayment for an EC would entail a 5% cash payment on the booking day and a 15% down payment by cash or cpf, when exercising the option, by signing the sales and purchase document, 9 weeks from the booking day. For a 3 bedroom EC valued at $1.5mil the 20% down payment would cost $300,000.

How much loan can you get for EC?

You can get up to a 75% private bank loan for EC purchase. This is to be accompanied by a mandatory 5% cash payment. 

Can I use CPF to buy EC?

Yes you can pay for your EC using your CPF, after you fulfil the minimum cash payment stipulated under the MAS’s LTV limits. I.e after paying a 5% minimum cash payment, you are free to use your CPF to fund your remaining downpayment, reduce your mortgage amount, pay for stamp duties, legal fees or monthly mortgage.

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.