Insight: Commercial Properties with Enbloc Potential
A COLLECTIVE sale is a sale of properties that are under multiple ownership to a single buyer. For strata-titled properties – such as apartments, town houses, office blocks, malls, mixed-use developments and flatted factories – that are at least 10 years old, 80 per cent (by share value and floor area) of owners’ consent is necessary before the property can be put up for sale. Properties that are less than 10 years old require 90 per cent of owners’ consent.
Historically, collective sales have been dominated by residential projects. During the recent collective sale wave in 2017 to 2018, 93 per cent of collective sales worth over S$18 billion comprised residential transactions. However, that trend appears to be changing, even as total volumes have declined.
In 2021 and 2022-to-date, there have been increasing big-ticket commercial and mixed-use collective sales, making up over 50 per cent of the total volume. While residential collective sales still make up over 40 per cent of the volumes, they have been focused on smaller sites.
City centre rejuvenation encouraging more mixed-use
Prior to the pandemic, in 2019, the Urban Redevelopment Authority (URA) introduced a new set of incentives to reposition Singapore’s CBD (central business district) as a 24/7 mixed-use district, so that the CBD will not only be a place to work, but also a vibrant place to live and play in.
URA rolled out two schemes – the CBD Incentive Scheme and Strategic Development Incentive (SDI) Scheme. The CBD Incentive Scheme offers incentives to encourage the conversion of existing, older, office developments into mixed-use developments that will help to rejuvenate the CBD, while the SDI Scheme is intended to encourage the redevelopment of older buildings in strategic areas into new, bold and innovative developments that will positively transform the surrounding urban environment. Upon fulfilling the eligibility criteria, including age and size of site, and depending on the mix of pro forma uses, buildable gross floor areas can be increased by 25 to 30 per cent.
The take-up rate for the schemes was patchy at first, but has picked up speed during the pandemic, with several institutionally-owned assets undergoing redevelopment, including the former AXA Tower and Fuji Xerox Towers under the CBD Incentive Scheme, and Central Mall and Central Square, as well as Faber House under the SDI Scheme.
While strata-titled projects are typically harder to execute, Maxwell House at the edge of the CBD was sold collectively for S$276.8 million in May 2021, with the developers encouraged by a 30 per cent increase in gross floor area, provided the predominantly commercial site is redeveloped into a predominantly (80 per cent) residential building.
In late 2019, URA offered redevelopment incentives to the owners of Midpoint Orchard, Faber House and Orchard OG under the SDI Scheme. These adjacent buildings, fragmentally held, if redeveloped together could bring about significant transformative impact to the Orchard Road vicinity. While eventually the proposal did not materialise, we expect URA to be inclined to support Orchard Road rejuvenation proposals. Meanwhile, freehold strata-titled mall, Midpoint Orchard, is preparing for its third attempt at a collective sale with a sale bid of around S$350 million. Other Orchard Road buildings that could also be in line for collective sale launch include Orchard Towers and Far East Shopping Centre.
Successful commercial collective sales
All in all, interest in commercial collective sales is likely to remain firm and form a significant proportion of collective sales moving forward when compared to the past collective sales cycles.
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