LANDMARK buildings completed in the 1970s and 1980s in Singapore such as Lucky Plaza on Orchard Road and International Plaza in Tanjong Pagar have multiple individual strata owners of their commercial spaces.
While rental yield may be low for some owners of strata shop lots or office spaces, the focus may be on long-term capital gain. For some strata owners of commercial space, who use the space to house their own business operations, having security of tenure through ownership can be valuable.
Some individuals who own strata commercial lots have probably had plenty to cheer about. In February, it was announced that the freehold strata-owned Tanglin Shopping Centre was sold for S$868 million to Pacific Eagle Real Estate, a Singapore-based privately held entity of the Tanoto family, in its fourth attempt at a collective sale. The sale price for the office, retail and car parking complex was about 10 per cent above the reserve price.
In 2021, collective sales of strata-owned commercial buildings, such as Peace Centre/Peace Mansion in the Mount Sophia area and Maxwell House along Maxwell Road, were successful.
Restricting strata subdivision
But individuals armed with a couple of million dollars who are looking to buy strata office or shop lots in new developments in the Central Area may not have such an option going forward.
In a circular dated Mar 15, the Urban Redevelopment Authority (URA) said commercial developments as well as the commercial components 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.
The guidelines apply to locations 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.
Additionally, this restriction applies to redevelopment proposals under the Central Business District Incentive and Strategic Development Incentive schemes.
But the strata subdivision for the purpose of delineating boundaries between different uses in mixed-use developments will continue to be permitted, as the intention of the new guidelines is to limit the number of strata lots within a development to avoid fragmented ownership.
Sure, fragmented ownership of office or retail spaces may lead to problems in maintenance and upkeep. Individual strata owners may find it difficult to obtain consensus to regularly maintain and/or upgrade the building, which can result in deteriorating physical condition, and in curating a good tenant mix.
Many condominiums and apartment buildings here are owned by multiple strata-owners. I have experience living in an apartment block that was more than 30 years old. I entertained thoughts that the strata owners should incur substantial capital expenditure on asset enhancement but my view was a minority one.
The URA is probably right that its new rules will help ensure the upkeep and quality of developments in key parts of the Central Area.
No need to sell strata lots
As it is, the rationale for developers of commercial buildings to sell strata shop lots and offices to multiple owners may not exist today. Many Singapore developers have ridden the wave of Singapore’s transformation from third world to first and in the process built up financial resources to hold on to new commercial developments or redevelopments for recurrent income.
The GuocoLand-led group that is developing Guoco Midtown, a mega transit-oriented integrated development at the Beach Road-Bugis district, may be happy to keep the office and retail spaces for investment after completing the development, as might IOI Properties with the office-led IOI Central Boulevard that is being built in the the Marina Bay area.
In any case, with abundant institutional and family office money looking to buy prime commercial buildings in Singapore, it would likely be easy to secure buyers for entire blocks.
Perhaps shoppers will not miss the odd tenant mix and questionable maintenance standards of some old strata-owned shopping centres even if these centres may possibly have more character than the big suburban malls that are owned by various real estate investment trusts (Reits).
Investing in physical property here became harder for many individuals when the government raised the additional buyer’s stamp duty in late 2021 for Singapore citizens and permanent residents buying second and additional homes. Some of these individuals may have hoped to buy strata office or shop lots instead, but such a strategy will not be easy to execute.
Sure, individuals can get exposure to high quality office and retail buildings here that are professionally managed through investing in listed Reits and property groups.
But investing in listed entities is not the same as owning one’s own office or shop space – with the former, one is exposed to a diversified portfolio and one needs to have faith in management.
Strata ownership of commercial assets offers the democratisation of ownership of such assets, including the messiness that comes with having a fragmented group of owners. The chance for the merely rich to own a shop lot or office space of a few hundred square feet in a central location may be increasingly difficult with the URA’s ban on strata subdivision for commercial properties in some areas.
Perhaps Singapore will have a better cityscape, with well managed commercial buildings in the Central Area that meet the needs of knowledge workers and shoppers in a Covid-endemic world. An Orchard Road dominated by malls held by single owners may offer a better retail experience and help with the area’s revitalisation.
But one will likely have to live with ownership of prime commercial assets being increasingly concentrated in the hands of well-resourced institutions and ultra- wealthy families.