Singapore ringfences ‘commercial and residential’ land from foreign buyers

[New Reporter]

Singapore ringfences ‘commercial and residential’ land from foreign buyers

Jul 20, 2023

FOREIGNERS will be required to get government approval to purchase land currently zoned as “commercial and residential” from Thursday (Jul 20).

This follows changes to the Residential Property Act (RPA) to “safeguard residential land for Singaporeans”, the Ministry of Law (MinLaw) and Singapore Land Authority (SLA) announced on Wednesday night.

Developments on land zoned for “commercial and residential” use will now be deemed residential property and regulated as such under the RPA, as the “commercial and residential” zone is being removed from the list of land-use zones that have been designated as non-residential property.

“Commercial and residential” properties may include shopping centres, hotels as well as office and residential properties. Some examples are Robertson Walk and UE Square.

Sites currently zoned as commercial and residential must have at least 60 per cent of allowable floor area used for residential purposes.

Foreign persons – individuals and entities – who are existing owners of land zoned or property permitted for such use need not seek approval if they intend to retain the property as-is, but must seek approval if they wish to retain and redevelop the property.

Exemptions for seeking approval can be made if: these foreign persons intending to purchase or acquire interest were granted the Option to Purchase (OTP) by sellers before Jul 20, 2023; the OTP is exercised on or before Aug 9, and the OTP has not been varied on or after Jul 20.

This change is among other updates being made to the Schedule of Non-Residential Properties under the RPA, as part of regular reviews.

Seven uses – Business 1, Business 2, Business 1 – White, Business 2 – White, Commercial/Institution, Reserve Site and Special Use – are also being added to the list, as residential uses are typically not allowed on such land use zones.

https://www.businesstimes.com.sg/property/singapore-ringfences-commercial-and-residential-land-foreign-buyers

[New Reporter]

Ringfencing of residential, commercial land from foreigners may drive investors to other asset types

Jul 20, 2023

THE move to restrict foreign buyers from purchasing land zoned as “commercial and residential” without government approval may result in a diversion of foreign investment to other asset classes, analysts said.

In an announcement late on Wednesday (Jul 19) night, the Ministry of Law and Singapore Land Authority said that developments on land zoned for “commercial and residential” use will now be deemed residential property and regulated as such under the Residential Property Act (RPA).

This follows changes to the RPA – namely the removal of “commercial and residential” properties from the list of land-use zones that have been designated non-residential property. The government highlighted that this is to “better reflect the intent of the RPA to safeguard residential land” for locals.

Foreign persons – that is, individuals and entities who are not Singapore citizens, companies, limited liability partnerships or societies – will now have to seek approval if they wish to purchase any land currently zoned as “commercial and residential”.

Previously, foreigners would only require government approval if they intend to acquire land or a building situated on land that has been zoned “residential” or “residential with commercial on the first level”.

“Commercial and residential” properties typically front the main roads of residential estates and are scattered across the island, from the Orchard Road area to heartland estates, noted Karamjit Singh, chief executive officer at property consultancy and investment sales specialist Delasa.

One area with a particularly high concentration of such properties is the main road of Balestier Road, he said. Some major properties with such zoning include the five-storey shopping mall Shaw Plaza and strata-titled developments such as Balestier Point and Balestier Plaza.

Generally, properties zoned “commercial and residential” have a 40:60 split in allowable gross floor area between the commercial use and residential, respectively.

Huttons senior research director Lee Sze Teck reckoned that the move may be to pre-emptively prevent an over-concentration of ownership in a development by foreigners.

“If a development is predominantly owned, say 80 per cent by a foreign person, the foreign person can decide what to do with the development, including en bloc,” he said.

In the meantime, the change may create uncertainty in the investment sales, collective sales and shophouse markets as property players “seek clarity on the new rules”, Lee added.

“For example, strata sales of commercial units in a ‘commercial and residential’ zoned development may be affected by this change. Some shophouses in Bugis may be affected.”

Wong Siew Ying, PropNex’s head of research and content, also highlighted that this could add another step in the collective sales process for foreign entities looking to acquire such sites for redevelopment.

“There is no certainty that their application will be approved,” she said. “This potentially adds a hurdle for the collective sale of such developments.”

OrangeTee & Tie senior vice-president of research and analytics Christine Sun noted that the change might hit the shophouse market hardest. This includes Housing and Development Board shophouses, she said.

Based on the consultancy’s ground observations, the recent hikes in Additional Buyer’s Stamp Duty (ABSD) have led foreign buyers with deep enough pockets to turn their eyes from pure residential properties to shophouses, including those with residential and commercial components.

Prices and rents of these shophouses might, in turn, increase and be passed on to the consumers, she said. “Since a lot of locals and entrepreneurs set up the shophouses, they may also want to buy the unit. Perhaps there is now a need to ensure that prices and rents do not keep going up.”

The new restriction will also “adversely affect” current owners of these shophouses, since there will be a much smaller pool of potential buyers, said Nicholas Mak, chief research officer at property portal Mogul.sg.

“That means there will be a switch from investing in shophouses to buying purely commercial properties since there is a bigger pool of buyers,” he said.

Echoing this sentiment, Delasa’s Singh said he suspects the RPA changes were made to “prevent foreigners from hoarding residential stock”.

“The side effect of this would be diverting the focus and funds of foreign investors towards commercial assets and hotels, acquisitions of which do not require government approval or payment of ABSD,” he said.

This includes the strata-titled office sector – one that has already been witnessing growing interest from foreign ultra-high-net-worth individuals (UHNWIs) and family offices, noted Savills Singapore executive director of research and consultancy Alan Cheong.

According to Savills’ Q2 report on the investment sales market, transaction values of real estate investment sales plunged by 50.7 per cent quarter on quarter to S$3.29 billion.

Even so, Cheong said the strata-titled sector remained “resilient” in Q2 – with eight transactions worth a total of S$298.5 million recorded – as UHNWIs and family offices diverted their interest from residential to commercial properties, particularly strata-titled units and shophouses.

And as foreign buyers rechannel their funds, this might result in inflationary pressures in other sectors, he said.

Still, Cheong pointed out that any impact from the RPA amendment would be minor since the current ABSD rate of 60 per cent is a large enough deterrent for foreign buyers looking to purchase “commercial and residential” properties.

This is because buyers are already required to pay ABSD for the residential portion of the property, he said. “Optically, it looks like they are curbing foreign demand… (but) I see it more as a harmonisation of the definition of commercial and residential properties.”

In any case, Mak from Mogul.sg highlighted that foreign investors tend to favour purely commercial shophouses, instead of those zoned “commercial and residential”.

“Purely commercial shophouses give them more flexibility for use, so I think the negative effect of the change may not be very drastic,” he said. “We are also unlikely to see an immediate impact since the shophouse market is not as active or liquid as the condo market.”

Leonard Tay, head of research at Knight Frank, also noted that most developers will have “some sort of foreign ownership” if they are large enough.

“In which case, they would be deemed ‘foreign buyers’, unless they get an exemption from the qualifying certificate… or if they can prove that they’re almost all local,” he said.

The change to the RPA will therefore not have much of an effect on the current treatment of buying land, Tay added.

“The spirit of the law in the past is that any foreigner who wants to buy any land will need government approval – for instance, if they are looking to buy a landed house. That is already part of the law to safeguard residential land for Singaporeans,” he said.

“Maybe they are just taking out the ambiguity for ‘commercial and residential’ properties, which are still mostly (used for) residential.”

https://www.businesstimes.com.sg/property/ringfencing-residential-commercial-land-foreigners-may-drive-investors-other-asset-types