How restriction on strata subdivision may impact commercial properties

On 15 March 2022, URA announced that commercial developments as well as the commercial components of mixed-use developments located in prominent areas and routes in Singapore's Central Area are no longer allowed to be subdivided into individual units. In the case of existing developments that are strata subdivided, the restriction will apply to future redevelopment. For all other developments, the new rule takes effect immediately.

The guidelines apply to locations such as Orchard Road, Tanglin Road, Scotts Road (Orchard Road corridor), Shenton Way, Robinson Road, Anson Road, Raffles Quay, Raffles Place Park, and along the Singapore River (CBD corridor). Developments near key landmarks of national significance are also subject to the restriction. Major strata-titled buildings located in the applicable areas include Far East Plaza, Lucky Plaza, Ming Arcade, Tanglin Shopping Centre and Orchard Towers in Orchard, as well as AXA Tower, International Plaza, Peninsula Plaza, Shenton House, The Arcade and The Adelphi in the Downtown Core.

The rationale behind this is to ensure better maintenance and upkeep of quality buildings as well as organize a good tenant mix under single ownership. Fragmented ownership tends to face challenges in getting a consensus on such matters.

Additionally, this restriction applies to redevelopment proposals under the Central Business District (CBD) Incentive and Strategic Development Incentive (SDI) schemes. It was reported that URA has received 12 outline applications under the CBD Incentive Scheme, of which eight were given in-principle approval. Four outline applications under the SDI scheme were received and approved.

Under single ownership, there will be stronger alignment of interests in terms of building management, adoption of ESG (environmental, social and governance) criteria, unit layout and choice of tenant mix. This can prevent, or at least, slow down the deterioration and decay of ageing buildings, improving the urban landscape in the longer term.

However, the restriction would limit future supply of strata units, especially office units. Investors who are looking to buy strata office or shop lots in new developments in the Central Area may not have such an option going forward. Inevitably, the ownership of prime commercial assets will be increasingly concentrated in the hands of institutional landlords and ultra- wealthy families.