The Government will build a bus depot for SBS Transit in Loyang Avenue, and it will house the extra buses that will be bought over the next few years.
The Land Transport Authority (LTA) said on Wednesday that it has already called for tenders to build the depot. When ready in 2015, it will accommodate about 500 buses.
It said SBS Transit's existing depots and bus parks are reaching full capacity, and the new facility is needed for the Government's Bus Service Enhancement Programme.
The $1.1 billion scheme pays for 550 buses that SBS Transit and SMRT will roll out over the next five years in a bid to add new services and increase the frequency of buses.
The Government announced last March that it would fund infrastructure development, such as depots, and lease these to bus operators at a nominal fee.
Previously, SMRT and SBS Transit had paid for them.
Referring to the Loyang Avenue depot, the LTA said in Wednesday's statement: "This helps lower the entry barriers for new operators when we introduce contestability in the bus industry, as bus parking and depots are key infrastructure for running bus services."
The LTA developed and handed over one bus park in Upper Changi Road East to SBS Transit and another in Woodlands to SMRT in January.
Last month, it said it will build a new bus depot off Jurong West for SMRT.