No more strata subdivision of commercial properties in Central areas

Singapore (Edgeprop)

SINGAPORE (EDGEPROP) – The Urban Redevelopment Authority (URA) has announced that strata subdivision of commercial complexes or mixed-use developments with a commercial component will no longer be allowed in Central areas. This includes the Orchard Road and Scotts Road stretch, the CBD areas of Robinson Road and Shenton Way and the areas surrounding the Padang and War Memorial Park.

“In general, strata subdivided developments, due to their fragmented ownership, tend to face challenges in maintenance and upkeep. For example, they may have difficulties in obtaining consensus to regularly maintain and/or upgrade the building, which can result in deteriorating physical condition, and in curating a good tenant mix,” says URA in a circular released on March 15. The restriction will limit the number of strata lots within the development and in turn, ensure its upkeep and quality, it adds.

Colliers International Singapore’s head of research Catherine He sees the restrictions as “a welcome development”, as it will prevent strata mall owners from trying to maximise fixed rents from subdivided units with little sharing of business operational risks. Instead, it will encourage them to put more effort into marketing and positioning the malls in order to draw crowds and increase footfall.

“Under a single ownership, there will be a stronger alignment of interests in terms of building management, incorporating ESG [environmental social governance] considerations, as well as a choice of tenant mix,” she adds. “As a result, it will help to preserve the positioning and value of the asset in the long run.”

However, building owners who are eyeing collective sales or redevelopment could be impacted, either through a lower likelihood of en bloc sales or lower prices for en bloc sales, says ERA Realty Network’s head of research and consultancy department Nicholas Mak.

“This is because the modus operandi of some developers is to redevelop a building or land into strata-units for sale,” he adds. “This method can provide a relatively high rate of financial return within a given time, compared to holding the property for rental income,” adding that this new restriction will drastically lessen their interest in the properties in the affected locations.

Mak also highlighted that the shopping belt of Orchard Road and Scotts Road, as well as other locations in the CBD with street-level shops that enjoy relatively high pedestrian traffic, will be among the most affected by this new restriction. Some of these strata commercial units are owned by individual investors.

The restrictions will reduce the investment opportunities available for individual small investors going forward, he continues. “An increasing number of these commercial strata-titled properties get redeveloped over time.”

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