Answering some common real estate questions that consumers would have
Getty Goh @ iProperty.com
Jan 28, 2013
Singapore’s mainstream newspaper recently published a forum letter by a vexed homebuyer who raised numerous questions pertaining to the process of buying a private property. The writer raised a number of “anomalies” and complained that he was unable to get satisfactory answers, even from some of the more established property agents. To help consumers better understand the Singapore real estate market, this article will attempt to answer some of the common real estate questions that some consumers would have.
Who are the stakeholders in the real estate market?
Before we delve into the details, consumers should note that the Singapore’s real estate sector has many stakeholders and they are governed by different regulations and government agencies. To illustrate, before construction can start, developers have to ensure that the building designs conform to the development control guidelines by obtaining a written permission (WP) from URA. In addition, developers would have seek guidance from BCA on matters concerning structural integrity, lighting and ventilation, LTA on matters concerning repositioning of access and the widening of roads, ENV on matters concerning sewage and drainage, etc.
The relevant guidelines include the Housing Developers Rules, Development Control Guidelines, Code of Practice on Buildability, Conveyancing and Law of Property Act, Law Society of Singapore’s Conditions of Sale, etc.
Each of these guidelines governs different aspects of the design, construction, sales and legal process. The application of the guidelines varies according to the detailed building design. Adding to the complexity, the relevant authorities revise the policies from time to time. As a result, developers would normally have a team of experienced qualified professionals such as architects, engineers, surveyors, quantity surveyors, lawyers, etc. to help navigate through the myriad of guidelines.
Definition of spaces – What is Gross Floor Area?
As present, the authorities controls land use intensity via plot ratio, which affects the Gross Floor Area (GFA). Based on URA, GFA is defined as the “covered floor space (whether within or outside a building and whether or not enclosed) measured between party walls including thickness of external walls and any open area used for commercial purposes.” Generally, URA would consider GFA to include “all covered floor areas of a building, except otherwise exempted, and uncovered areas for commercial uses”.
The detailed GFA calculation varies according to the type of properties (i.e. residential, commercial or industrial) as well as design. To illustrate enclosed dead space at any level (commonly annotated as void spaces) and covered enclosed space (regardless of accessibility use or height) as well as voids over staircases are generally included in the building’s GFA. On the other hand, air-conditioner ledges not exceeding 1m wide are excluded from GFA calculations. A detailed write-up on what is and is not considered as part of GFA can be found in the following link:
Why is it that not all developments allow the erection of covered structure on open roof terraces?
So how does the GFA directly impact private property owners? To explain this, let us look at why there is restriction for owners to build enclosing balconies and having covered structures built on top of open roof terraces in newer projects. Generally, development can only build up to the allowable plot ratio that is stipulated in the Master Plan. For example, if a residential site has an allowable plot ratio of 1.4 and a site area of 10,000 sq ft, the maximum allowable GFA is 14,000 sq ft. For some of the newer projects, the developers may have already maximised the allowable GFA. By allowing residents to erect a shelter (and making it a covered area) the GFA would go beyond the maximum limit – which is not allowed. Hence, for developments that are built to the maximum allowable GFA, residents would not be allowed to erect shelters, while residents in developments that have yet to maximise the GFA would be able to.
Although the government clearly defines what GFA is, they do not provide official definitions for strata floor area or unit area. Nonetheless, strata floor area as well as unit areas are largely recognised by industry practitioners as the sizes, of strata-titled units, that are reflected in caveats lodged with Singapore Land Authority. In addition, the authorities do not stipulate what is considered as sellable space, hence there have been instances when some developers included space that are not counted within the GFA, into the unit area and sold them. (private enclosed spaces and roof terrace were such examples).
Valuation – the difference between resale and new launch property prices
In the letter to the media, the writer also cited that a newly launched condo in Alexandra Road had units prices at $1950psf. However, valuation checks on a three-year-old condo located just 300m away showed that the highest possible valuation for that development was only $1450psf. Hence, he questioned why secondary market units are valued at a hefty discount to primary market ones?
To answer this, let us look at the various methods as well as the factors used in a valuation process. Generally, the more common valuation methods include sales comparison method (i.e. comparing the subject property with similar properties), cost method (i.e. the replacement cost of the building), profit method (i.e. the income generating potential of the building).
Apart from the different valuation methods, factors such as location, size, tenure (i.e. freehold or leasehold), condition of property, state of maintenance, amenities, floor level orientation, etc. could also affect the value of a property. Hence possible reasons behind the discrepancy in valuation could be the location, the orientation or even the different conditions between the two units.
Small-Offices-Home-Offices (SOHO) and Commercial title
Presently, URA recognises three categories of properties (1) residential, (2) commercial, (3) industrial. Condominiums, apartments, terrace houses, town houses, executive condominiums, etc. fall under the residential property category. Shops and office spaces fall under the commercial property category, while multi-user factories and warehouses fall under the industrial property category.
Based on the link attached, http://www.ura.gov.sg/dc/connect/connect11-02/reliable-02.html, URA “does not recognize “SOHO” as a planning term and does not specifically approve a development for “SOHO” use. Hence, owners would have to apply for a change of use if they want to convert a residential unit into a commercial unit or vice versa. There are currently schemes available to convert residential units into home offices (http://edanet.ura.gov.sg/dcd/homeoffice/HOMainPage/HOindex.jsp).
Conversely, owners who want to legally convert their commercial units for residential use can do by applying a change of use (http://www.ura.gov.sg/dc/dcu/cues/cues-index.htm), subjected to approval by the authorities.
Privately owned 99-leasehold tenure and en-bloc potential
Prior to 2005, all the successful collective sales were for freehold developments. The first successful collective sale for a 99-leasehold development was Eng Cheong Tower (the site was redeveloped into Southbank) in 2005. Since then, more 99-leasehold developments have been successfully sold en-bloc and there are established procedures to en-bloc a leasehold development.
In a typical leasehold collective sale process, the developer who en-blocs a development, would get a lease top-up from the government. What this means is that the government, who is the landowner, must be agreeable to give the developer a new lease of 99 years. If the developer is unable to secure a fresh 99 years lease, they may not proceed with the en-bloc transaction, as it would not be economically viable. In the case where the landowner is a private company and not the government, the same process to having the remaining lease extended applies. However, the private landowner’s consideration to grant a new lease could be quite different from the government’s.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)
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