COMMERCIAL developments as well as the commercial component of mixed-use developments located in prominent areas and routes in Singapore’s Central Area are no longer allowed to be strata subdivided into individual units.
This restriction also applies to redevelopment proposals under the Central Business District (CBD) Incentive and Strategic Development Incentive (SDI) schemes.
The Urban Redevelopment Authority (URA) announced the change on Tuesday (Mar 15), defining “commercial uses” to include offices, shops and restaurants.
Strata subdivided developments, due to the fragmented ownership, tend to face challenges in maintenance and upkeep, URA said. The restriction thus aims to ensure the upkeep and quality of the commercial properties, and ensure that redevelopment proposals under the CBD Incentive and SDI schemes “are well managed and maintained”, it added.
The new rule applies to developments in areas such as Orchard Road, Tanglin Road, Scotts Road (Orchard Road corridor), Shenton Way, Robinson Road, Anson Road, Raffles Quay, Raffles Place Park, and along the Singapore River (CBD corridor). Developments near key landmarks of national significance are also subject to the restriction.
For existing developments that are strata subdivided, the restriction will apply to future redevelopment. For all other developments, it takes effect immediately.
Wong Xian Yang, Cushman & Wakefield’s head of research, Singapore, said this will be “slightly negative” for the investment prospects of the affected developments, as it removes a potential divestment route for developers and investors.
On the other hand, Huttons Asia senior director (research), Lee Sze Teck, sees the move as positive for the property market, as developers can build their source of recurring income to complement their development income.
“Single-owner commercial developments will be easier to divest compared to strata-titled developments. It will allow owners to earn recurring income and also capitalise on future upside when they exit the investment,” he added.
Meanwhile, Knight Frank head of consultancy, Alice Tan, expects existing strata-titled commercial buildings in the Central Area to become more popular. She noted that strata office units tend to appeal to smaller investors with more modest appetites.
Colliers said the rule will limit the number of commercial strata units in the Central Area, with almost no new supply coming onto the market. “As they come at palatable prices, existing commercial strata units often appeal to family offices and high-net-worth individuals. Consequently, these units will be more highly sought after.”
Strata office transactions in the central region totalled S$1.79 billion in 2021, almost double the volume in 2020, Colliers noted.
ERA Realty head of research and consultancy Nicholas Mak pointed out that over time, as an increasing number of these properties are redeveloped, small investors will have fewer opportunities to invest in commercial strata units in the prominent locations.
He added that if the owners of a building in the affected areas are planning a collective sale, the new restriction could either lower their chances of a successful en bloc deal or reduce the price.
“The modus operandi of some developers is to redevelop a building or land into strata units for sale, as this method can provide a relatively high rate of financial return within a given time… The new restrictions will therefore drastically lessen such developers’ interest in the properties in the affected locations,” Mak added.
When it comes to the tenant mix and management of the properties, analysts and consultants are in favour of the latest announcement.
Tan from Knight Frank said there is sometimes greater physical deterioration in strata subdivided buildings, as the multiple owners are unable to find consensus in maintenance and upkeep.
“Additionally, fragmented ownership could invite a tenant mix that is confusing, without a common theme that accentuates a building’s identity,” she noted.
Huttons’ Lee said commercial developments under a single owner tend to be better managed and achieve higher occupancy than strata-titled developments.
And according to Colliers, strata malls may be less resilient amid headwinds such as e-commerce and travel curbs, as collective action is often needed to introduce new concepts, and to market and position the properties. As a result, they fail to draw crowds and suffer from low footfall.
“Therefore, this restriction will prevent owners from trying to maximise fixed rents from subdivided units with little sharing of business operational risks. This will ensure that malls in Orchard Road remain well run,” the firm added.