'Open space' loophole to be plugged

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'Open space' loophole to be plugged

Review of property policy that allows developers to sell free spaces

Published on Jan 08, 2013

By Rachel Chang


NATIONAL Development Minister Khaw Boon Wan yesterday vowed to plug a loophole that allows property developers to sell free spaces for profit.

The move comes amid public unhappiness over super-sized, super-priced executive condominium (EC) units with large roof terraces.

Currently, developers are allowed to use outdoor spaces as private or communal roof terraces, and do not have to pay development charges on them.

This policy is intended to encourage them to build communal spaces for residents and promote greenery, said Mr Khaw in a blog.

However, some developers have been packaging "outdoor space open to the sky" as part of swanky units in the form of rooftop terraces and private enclosed spaces, he noted. By including this as part of penthouse units instead of building communal outdoor space, developers are effectively "selling off free space to make an additional profit for themselves", he said. He has asked the Urban Redevelopment Authority (URA) to "review this policy and have it fixed".

Recently, EC project CityLife @Tampines sold a 4,349 sq ft "presidential" penthouse for $2.05 million. It includes a 1,600 sq ft rooftop terrace, for which the developers paid no development charge. ECs are a public-private housing hybrid meant for the "sandwiched class" - those over the income ceiling for an HDB flat who cannot afford private property. They come with subsidies and an income ceiling of $12,000.

In a blog headlined "Who gets short-changed?", Mr Khaw acknowledged public indignation at million-dollar EC units as understandable, as they were "deviations" from what was intended.

Initially, he said, he was baffled that developers would "short-change" themselves in selling such units: "Why not sell more normal-sized EC units at a higher price per sq ft (psf) and make more profit? The space for one super penthouse, for example, can be used to build two or three normal-sized EC units."

CityLife's penthouse was $470 psf, compared with $770 psf on average for the whole project.

He then realised it was because they could profit from the free outdoor space. While this is "not improper under current rules", he lamented the way it shrank communal space for all residents.

Buyers may also be disappointed later that the outdoor space they have paid for cannot be covered up or enclosed, he said.

A URA spokesman confirmed that the new guidelines on private roof terraces and enclosed spaces will apply to all non-landed private developments, not just ECs. She did not say when the new rules could be expected.

Developers and analysts were taken aback. "Because of one or two penthouses, the rules will be changed to restrict the creativity of all property developments," said boutique developer EL Development's managing director Lim Yew Soon. "There are buyers who want these rooftop spaces for small gardens or for jacuzzis. You cannot just throw away the whole basket because of one bad egg."

SLP International executive director of research and consultancy Nicholas Mak said that whether developers will stop the practice of including large roof terraces in their units depends on URA also restricting the size of outdoor space allowed per unit.

Slapping a charge on outdoor space without restricting the size allowed may just make developers boost prices to maintain their profit margins, he noted.

EC penthouse buyer Jaime Chong, 33, whose 2,013 sq ft unit in the Topiary at Fernvale will come with a 301 sq ft roof terrace, said she did not mind paying for space the developer got for free, as it could be made liveable by installing a retractable awning.

"My agent says they usually allow the removable type, and we can make it into a cosy corner."

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Additional reporting by Melissa Tan

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Published January 08, 2013

URA to review guidelines on private enclosed space

No development charges now for spaces not part of gross floor area

By ong chor hao


THE Urban Redevelopment Authority (URA) has been directed to review and fix guidelines on private roof terraces and private enclosed space on ground floors that allow developers to profit off bonus floor area that is given to them for free.

National Development Minister Khaw Boon Wan said in a blog post yesterday that super-sized executive condominiums (ECs) units were offered and snapped up by buyers at some recent launches who did not appear to be from the sandwiched class.

"Understandably, there was public indignation at such deviations (both by some developers and some buyers) from what we had intended ECs to serve," he wrote.

Developers explained that such units were priced lower and were in the minority, Mr Khaw added.

For example, recent reports put the largest penthouse at the Citylife@Tampines EC project at about $470 per square foot (psf), while its other smaller and more typical units transacted for upwards of $700 psf.

"I was initially baffled by this. Why would the developer short-change itself? Why not sell more normal-sized EC units at a higher dollar psf, and make more profit?" Mr Khaw wrote.

He eventually found out this was not the case.

Currently, developers do not have to pay development charges for outdoor spaces that are open to the sky, as they are not considered part of gross floor area (GFA). This exemption applies to all developments, including ECs.

Developers can build either private or communal open spaces. This is aimed at encouraging more outdoor space for residents to enjoy, Mr Khaw noted.

However, when developers price a unit, they offer the entire space (including the outdoor space) for sale and make additional profits.

Making use of bonus space like this reduces construction costs for developers, but leads to a higher quantum for buyers, said Png Poh Soon, head of research at Knight Frank Singapore.

Ong Kah Seng, director of R'ST Research, warned that buyers could overstretch their finances with these large units. And if they can afford the high prices, he questioned the need to subsidise them.

Mr Khaw said that the creation and sale of super-sized private roof terraces has become more prevalent, and has extended to the ground floor where "private enclosed space" (PES) is sold.

"Developers selling off free space to make additional profit for themselves is not improper under current URA rules," the minister pointed out.

"But as more developers do so, with larger private roof terraces and PES, communal space in the development that benefits all residents will correspondingly shrink."

These open spaces also cannot be covered up or enclosed, he added, which could disappoint buyers down the road.

A URA spokesman said that it is currently reviewing the guidelines on PES and private roof terraces, and will announce the details once the review is completed.

R'ST's Mr Ong said that he expects that units beyond 2,000 sq ft to be barred unless there are good reasons to build a unit of that size, but that both buyers and developers will benefit.

The strong demand for ECs means that a ban on big units ensures "EC housing subsidies go to the appropriate sandwich class".

For developers, the same demand will sustain sales, and the review will free up space to provide more smaller units which fetch higher psf prices.

Knight Frank's Mr Png believed that even if these open spaces become part of the GFA allowed for each development, developers can still pocket the profit after development charges.

He also reckoned that it is unlikely that any new rules will be applied retroactively to projects that already have their planning approvals.

But some analysts expressed doubts over the review.

Lee Sze Teck, senior manager for training, research and consultancy at DWG, said that the current policy has been in place for many years, and shows that buyers value the open spaces. Furthermore, developers' margins will be squeezed if sales of such spaces are indeed prohibited or limited.