URA Restricts Strata Subdivision of Commercial Space in Central Areas
On 15 Mar 2022, URA made an announcement that it will not allow the strata subdivision of the commercial space into individual strata units within developments located at prominent areas and routes in the Central Area.
The restriction will also apply to redevelopment proposals under the Central Business District (CBD) Incentive and Strategic Development Incentive (SDI) schemes. For existing developments that are already strata subdivided, the above restrictions will apply upon future redevelopment.
Due to the fact that the commercial units in strata subdivided developments are owned by different owners, it is usually a challenge to get all the owners of such buildings to agree to expenditures for major maintenance and upgrading. As a result, we often notice that strata subdivided properties look older and are not as well maintained.
Locations Where Guidelines Apply
Developments located along Orchard Road, Tanglin Road and Scotts Road (Orchard Road corridor)
Developments located along Shenton Way, Robinson Road, Anson Road, Raffles Quay, facing Raffles Place Park, and along the Singapore River (CBD corridor)
Developments in close proximity to key landmarks of national significance
Major Strata-titled Buildings Affected
Impact on Existing Commercial Property Owners
If the owners of the existing buildings in the affected areas do not plan to sell or redevelop the building, they will not be affected by the new restriction for the time being.
However, there are huge implications for those in the midst of an enbloc exercise, especially if the developer or buyer was intending to rebuild the building into strata units for sale. The restrictions could definitely affect the chances and perhaps price of the enbloc sale for the affected buildings.
Real estate firms that might benefit from these new restrictions are those that invest in property for rental income and hold their investments for medium to long term. More of such properties might become available to them for purchase. Examples of such firms are REITs, property funds and some major real estate companies.
That said, some commercial property owners might also profit from the announced restrictions as they are now in possession of a rare and diminishing property type. The prices of these affected buildings will inevitably be affected by other factors such as location, land tenure and perceived value of the property.
Impact on Small Investors
As more of these strata-titled commercial properties are redeveloped, there will be fewer and fewer strata-units available for sale, as the new restrictions apply to redeveloped properties. This will result in diminishing opportunities for small time investors to own commercial properties in key Central districts such as Orchard Road and the Central Business District. Before long, owning a commercial property in the Central areas of Singapore might be a thing of the past.
Investors will likely look into other property types to diversify their commercial property portfolio, perhaps shophouses, or commercial buildings zoned B1 Industrial, B2 Industrial or factory and warehouse space.
Long Term Impact
In the long term, shoppers, consumers and tenants of the commercial space in the affected areas should benefit from this new restriction.
If the entire commercial space in a new development is owned by a single entity and not subdivided, in theory, the commercial space could be better managed, maintained and marketed. The owner of the entire commercial space within a development would typically have a larger budget than individual owners of strata-units for activities such as advertising and promotion, as well as the upgrading and renovation of the building.
This could also prevent the deterioration and decay of ageing buildings in the more prominent part of the Central Area. As a result, the urban landscape could benefit from this new regulation in the longer run.