The impact of Singapore's strata subdivision ban
The banning of strata subdivision can up the investment appeal of designated sites.
Singapore’s CBD Corridor and Historic Zone, as well as the Orchard Road shopping belt, received a land and asset value booster shot on 15 March 2022.
This came in the form of a banning on strata subdivision into individual units for commercial components (e.g., offices, shops and restaurants) in standalone or mixed-use developments situated within designated zones in these three districts with effect from 15 March 2022. 1Bulk strata subdivision between uses in mixed developments remains permissible for these sites.
Such restriction is not new as it has been included in varying permutations as part of the sales conditions for several Government Land Sales sites. These include the Paya Lebar Quarter and upcoming IOI Central Boulevard Towers and Guoco Midtown.
JLL believes that the restriction will boost the property and land values of the majority of the properties in the designated zones.
1. Guarantee of quality
The banning of strata subdivision of commercial assets/components can stop the potential vicious cycle of future developments degenerating physically and facing redevelopment challenges due to fragmented ownership. The designated districts will be able to look forward to an uplift in image when existing deteriorating strata subdivided commercial assets are gradually redeveloped and replaced with developments held en bloc that will be kept in pristine physical condition, regularly updated to stay relevant, and professionally managed.
This serves as a guarantee of quality for these prime districts.
2. Enhanced rental income and stability
Blue chip tenants with high rental budgets are often drawn to prime commercial developments that are not strata-titled for their superior standard of upkeep, maintenance and tenant mix. They are also known to prefer to deal with corporate landlords rather than individual owners.
Hence, all else being equal, a single-owned commercial asset will command a premium in rent over its strata-titled counterparts. Due to concerted and well-coordinated tenant mix curation and marketing efforts, they also often enjoy higher occupancies than their strata-titled counterparts.
Coupled with blue-chip tenants being better pay masters, these factors culminate in prime single-owned commercial assets enjoying a higher and more regular stream of rental income compared to strata-titled assets, thus supporting higher asset and land values.
3. Growing pool of institutional investors
Singapore commercial investment real estate market has matured and is today attracting global funds with mid- to long-term investment horizons. They are on the hunt for prime income-producing assets to add to their portfolio and have been drawn to prime commercials assets in the designated zones. In the past decade, institutional purchases accounted for nearly 70% of the SGD 26 billion worth of en bloc assets, including stake sales, that changed hands in the designated zones.
The guarantee of a long-lasting prime quality neighbourhood and the removal of disamenity risk posed by degenerating strata-titled assets will elevate the appeal of commercial assets/sites in the designated zones. Competition by institutional buyers could stiffen and drives up land values, including for potential collective sale sites.
Source: JLL Research
4. Prime sites are prized possessions held for the long haul
In land scarce Singapore, prime commercial sites in the densely built CBD and Orchard Corridor are prized possessions held by owners for the long haul. In the past decade, except for 30 Raffles Place where the retail and office podium was strata subdivided following acquisition and asset enhancement works and subsequently resold on a collective basis to a single party, none of the remaining SGD 26 billion worth of en bloc assets that changed hands within the designated zones has undergone strata subdivision for resale. This is evidence that the income producing ability of assets/sites in the designated zones has trumped over their strata sale profit potential.
Looked at in this light, the loss of strata-subdividing right for sites in these designated zones will generally not disadvantage the owners. Instead, they can look forward to enhanced asset and land values arising from the collective gentrification of the zones they are situated within.
1This restriction will also be imposed on developments that are approved under the CBD Incentive Scheme and Strategic Development Incentive Scheme, as well as any other sites that the Urban Redevelopment Authority deems to be of strategic importance.
