New rule on commercial properties takes effect

The Urban Redevelopment Authority (URA) will no longer allow commercial developments and the commercial component of properties in the Central Business District (CBD) and Orchard Road corridors, among other designated areas, to be strata-subdivided into individual units.

The regulation, which took effect on Tuesday, is aimed at ensuring that future developments with a commercial component in prominent areas and routes in Singapore's central area are well-managed and maintained under a principal ownership, analysts say.

This comes as existing strata-subdivided developments, due to their fragmented ownership, tend to face challenges in maintenance and upkeep, the URA said in a circular on Tuesday.

"For example, they may have difficulties in obtaining consensus to regularly maintain the building, which can result in deteriorating physical condition, and in curating a good tenant mix."

The new rule applies to developments near landmarks of national significance, as well as the Orchard Road corridor - comprising Orchard Road, Tanglin Road and Scotts Road - and the CBD corridor of Shenton Way, Robinson Road, Anson Road, Raffles Quay, Raffles Place Park and along the Singapore River.

It also applies to redevelopment proposals under the CBD Incentive and Strategic Development Incentive (SDI) schemes.

URA is unable to specify the number of buildings that will be affected by the restrictions. "For existing strata subdivided sites, the restrictions apply only if and when the properties are redeveloped," it said.

Analysts pointed out that the restriction could dampen the investment prospects of developments in the designated areas, which include Lucky Plaza, Peninsula Plaza, Far East Plaza, if their owners decide to redevelop or sell these buildings.

This is because it "removes a potential divestment route for future developers and investors", Mr Wong Xian Yang, Cushman and Wakefield's head of research in Singapore, said.

But he pointed out that the regulation will also limit future supply of commercial strata units, especially office units, rendering them more valuable.

"In all, we don't anticipate a huge impact on market sentiment. Most investors acquire Singapore commercial properties for their stable income flows and have a mid-to long-term investment horizon."

Colliers called the regulation "a welcome development".

"Given headwinds such as e-commerce and travel restrictions, strata malls may be less resilient, as collective action is often needed to introduce new concepts, market and position the malls. As a result, they fail to draw crowds and suffer from low footfall," Colliers said.

"Under a single ownership, there will be stronger alignment of interests in terms of building management, incorporating ESG (environmental, social and governance) considerations, as well as choice of tenant mix. As a result, it will help to preserve the positioning and value of the asset in the long run," the firm said.

But the regulation could result in small investors having fewer opportunities to invest in strata units in these locations as more of these properties get redeveloped, ERA Realty head of research and consultancy Nicholas Mak noted.

Ms Wendy Yap, a small investor leasing 15 residential units at City Gate in Beach Road, noted that the strata-titled mall in the mixed-use development "has a lot of vacancies because it is not properly managed."

"If the mall cannot be properly managed, then it doesn't represent a good investment for small investors," she added.

Mr Mak said the rule could also affect collective sales of such developments and their asking prices. "The modus operandi of some developers is to redevelop a building or land into strata units for sale. This method can provide a relatively high rate of financial return within a given time compared with holding the property for rental income. Therefore, the restriction could lessen their interest in such properties in the affected locations."

City Developments said the rule does not affect its redevelopment plans. It is redeveloping the former Fuji Xerox Towers in 80 Anson Road, and will "retain the commercial component as one strata lot," a spokesman said.

It also announced in December a $315 million acquisition of Central Square in the Singapore River precinct For this project, CDL said it is not planning to strata subdivide the commercial component into individual units.

"We intend to retain the commercial component for recurring income as part of our investment portfolio," it said.