4 ways the new URA size restriction can affect you

Updated: 7 min read

The Urban Redevelopment Authority (URA) has recently imposed a new size restriction on condos. But we know what you’re thinking: size restriction is the developers’ problem, right?

But you’d be wrong, as URA’s new rules impact you in a number of different ways — from overall housing standards, to how much you end up paying for that condo. Here’s what you need to know.

What’s the new size restriction?

The new restriction applies to new non-landed residential developments located in the Central area. With effect from 18 January 2023 onwards, these new developments are required to have at least 20% of dwelling units with a nett internal area of at least 70 sqm (753 sq ft).

Nett internal area refers to the nett living space of a unit, which excludes voids, balconies, air-con ledges and other external areas.

This will apply to new flats and condos, as well as the residential component of commercial and mixed-use developments in the Central area.

The following sites are located within the Central area:

  • Outram
  • Newton
  • River Valley
  • Singapore River
  • Marina South
  • Marina East
  • Rochor
  • Orchard
  • Downtown Core

The new rule will also apply to homes built at Marina South. The land sale for the first condo there will be launched in December 2022.

This new requirement follows the size restrictions announced in 2018 for residential developments outside the Central area.

Under the rule that was effective from 17 January 2019, the maximum number of units is the Gross Floor Area (GFA) divided by 85 sqm. Previously, it was the GFA divided by 70 sqm.

In addition, the maximum number of units in the following areas is capped at total GFA divided by 100 sqm:

  • Marine Parade
  • Joo Chiat – Mountbatten
  • Telok Kurau – Jalan Eunos
  • Balestier
  • Stevens – Chancery
  • Pasir Panjang
  • Kovan – How Sun
  • Shelford
  • Loyang

Developers will also have to provide a good mix of unit sizes in areas outside the Central area. Each development must have:

  • Minimum of 20% units with a nett internal area of at least 100 sqm, and
  • Maximum of 20% units with a nett internal area of 50 sqm or less

So how does this matter to the average Singaporean?

With this new restriction for homes in the Central area, we foresee the impact will be similar to the developments outside the Central area, when the restrictions were first implemented.

The main ways this could affect you are:

  • Weaker prospects for en bloc sales
  • Lower affordability due to higher quantum
  • Fewer opportunities for small-time investors
  • Better living spaces overall

1. Weaker prospects for en bloc sales

The new rule translates to a drop in the total number of units developers can build.

For instance, previously, a developer may decide to build a new condo in the Central area with 300 units of studio and one-bedroom types. But with this new rule, the total number of units they can build will now be 270 instead, since at least 20% of the units will be at least 70 sqm, which is equivalent to a two-bedroom unit.

Needless to say, shaving off 30 units can eat into the developer’s profit margins. This will also likely make developers rethink en bloc sales in the Central area.

2. Lower affordability due to higher quantum

It’s plain to see that, as condo units get larger, they will be less affordable in terms of overall price. But there are other factors to consider as well.

Someone sitting on the floor and looking at loan forms
The lack of smaller units can put property investments out of reach for some.

For example, if developers cannot build as many units as before, they may compensate by selling the units they can build at a higher price point.

There’s also the issue of long term maintenance for the buyers. In general, the fewer the number of units, the higher the maintenance costs will be (as there are fewer households to divide the maintenance costs).

Two groups of buyers that will be most affected are retirees leaving an “empty nest”, and lifelong singles. Some retirees sell off their flat and move into a smaller condo, once the children are out of the house. Likewise, some lifelong singles would rather buy a small condo than a bigger flat, as they don’t intend to start families.

These two groups may find fewer affordable private housing options, especially if they are looking for a unit in the Central area.

3. Fewer opportunities for small-time investors

The new URA rules are specifically designed to lower the number of shoebox units (defined as units that are 500 sq ft or less). But shoeboxes are the preferred property assets of small-time investors — the low quantum makes them more affordable.

There are many property seminars out there, for example, which teach you to decouple (fully transfer the property to one spouse, while the other goes out and buys another house without facing the ABSD). The people who do this typically intend to get a shoebox investment.

There will now be less new shoebox units available in the market, whether in the Central area or in the suburbs to go around.

 

4. Better living spaces overall

In the long run, URA’s unit size change is good for all of us. The ultimate purpose of this restriction is to prevent Hong Kong-style “cage houses”.

When developers are allowed to build however they like, the tendency is to shrink unit sizes to build as many as possible (this maximises the per square foot value). If it’s allowed to carry on, unit sizes will continue to shrink over time.

With this new rule, developers are encouraged to build a good mix of unit sizes to cater to a wider range of household sizes. Not just for singles and investors, but for larger families as well.

Plus, families who can afford to buy a home in the city centre will now have more options to go around.

Ultimately, just like the rule change for houses outside the Central area in 2019, this restriction will work in favour of home owners — but not so much for investors, who typically prefer smaller units with lower quantums.

It also follows URA’s efforts to rejuvenate the CBD area to make it a more attractive place to live, work and play, including the CBD Incentive Scheme and Strategic Development Incentive (SDI) scheme.

Through the CBD Incentive Scheme, commercial buildings that are redeveloped into mixed-use projects would be given a higher gross plot ratio. One such redevelopment is the former Fuji Xerox Towers, which is being redeveloped into a 45-storey mixed-use development called Newport Residences.

[Additional reporting by Virginia Tanggono]

 

Do you think URA’s new size restriction is a good idea? Share your thoughts in the comments section below.

If you found this article helpful, 99.co recommends 6 things to consider before considering property investment in Singapore and Are REITs really a ‘smarter pick’ than property?


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Comments

    • John Tan

      I don’t agree with Point 2. Most analysts say that developers are forced to keep absolute prices about the same as that is what people can afford.

      So this means that developers will have to bid less for the land and provide larger apartments for the same price. No more continually shrinking apartments. It is a great benefit for buyers.

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