URA GFA Review Could Affect Future Condo En-Blocs

The government is looking at ways to allow developers to build more space in future developments, in a bid to incentivise certain behaviours among developers. A review of the Gross Floor Area (GFA) guidelines was announced by Minister of National Development, Chee Hong Tat, on Sept 21.

For property developers, the allowable GFA is a major determinant of whether a project makes financial sense: it determines the change in how much floor space they can build.

Up till now, GFA has not usually been tied to specific incentives such as sustainability or conservation. It’s a straightforward process – URA determines the GFA, the total allowable built-up area, of a development site and a developer either accepts it or doesn’t.

But with some possible changes under review by URA, we may see a shift in how future developments – including residential and commercial properties – are planned.

What Is GFA And Why Does It Matter?

Gross Floor Area is the allowable built-up area of a building that includes living areas for residential units, common areas like corridors, and mechanical spaces. The amount of space is counted under URA’s planning rules, and is closely related to – but not the same as – Gross Plot Ratio* (GPR).

Next to the land price, the GFA of a development is a major determinant of its financial attractiveness since it directly influences how many units a developer could reasonably build as well as the space for facilities and other parts of a building.

Consider a project like Lentoria. The District 27 project sits on a 116,455 sq ft site, which has a plot ratio of 2.1 under the master plan. Multiplying these gives a baseline GFA allowance of approximately 244,555 sq ft.

The site was sold in a land tender that was jointly awarded to Hong Leong Holdings and Mitsui Fudosan, after the developers put in the winning bid of $276.36 million, which works out to approximately $1,130 psf per plot ratio (ppr).

Now suppose a site with those same figures received a hypothetical bonus GFA uplift of 20%. This allowance would increase the total allowable built-up area to approximately 293,466 sq ft. Assuming the land price stays the same, the acquisition cost per sq ft of allowable GFA would fall from around $1,130 to just $942 psf.

In short, this is a reason why developers care so much about a project’s GFA, along with the land price.

That said, a higher GFA doesn’t scale in a linear way with profitability. Additional space also costs more money to build up, Land Betterment Charge rates can differ, and sometimes bonus GFA is restricted to particular features or uses.

Nonetheless, a higher GFA can shift a site from one that’s merely mediocre, into one that becomes highly attractive to multiple developers.

What A Review Of The GFA Framework May Entail

We don’t yet know the specifics of the GFA framework that the government says is under review. But the minister says that URA is looking at giving developers greater design flexibility, as well as incentivising certain features in future developments such as heat resilience and sustainability.

The general idea is clear though: The bonus GFA is the proverbial carrot at the end of the stick, for developers who build and design their projects with certain features included in the overall design.

We may see URA either grant extra floor space in a new development (likely tied to specific types of features), or allow those features to be built without counting towards the total GFA of a development.

There are similarities already in practice and policy: for example, under the Built Environment Transformation scheme, some projects can receive up to 3% bonus GFA for including productivity, digitalisation, and sustainability features.

There’s also something tangentially related under the Conserved Bungalows scheme. If a Conserved Bungalow site has 100,000 sq ft of GFA, but it contains a conserved 5,000 sq ft bungalow, the developer could retain the bungalow and still build another 100,000 sq ft.

At a larger scale, the CBD Incentive Scheme offers eligible older office buildings a higher GFA, if they’re converted to specified uses. Depending on location and the proposed use, the maximum GFA uplift is 25% or 30%.

Some of the projects that are utilising this scheme are: Newport Residences, Skywaters Residences, and the redevelopment of the former Shenton House. Overall, the CBD Incentive Scheme is being used to inject more homes, hotels, and lifestyle generating space uses into parts of the CBD.

Beyond the CBD, the Strategic Development Incentive (SDI) scheme encourages redevelopment of older commercial buildings in a roughly similar way. This generally applies to commercial developments at least 20 years old: URA may allow them to build more floor space, build taller, or change the mix of uses by introducing homes or hotel rooms into a commercial redevelopment.

This has the similar end-state of granting bonus GFA to the new development.

So, the idea of bonus GFA, based on certain build features, is not a new direction by urban planners. At the end of this latest review by the government, we’re likely to see something that builds further on existing schemes, such as bonuses for cooler (literal, not metaphorical) buildings and better communal environments.

Could There Be An Impact On The Residential En-Bloc Market?

So far, schemes such as SDI have focused on commercial or predominantly commercial developments. And we think that the changes being reviewed will be focused on the continued repositioning of the CBD and parts of the Central Area. If so, there’s a possibility the changes could impact some residential sites and existing developments.

If URA decides to award bonus GFA for residential projects – perhaps for meeting sustainability targets or providing other desirable features – that could have a positive impact on the condo en-bloc market.

The size of the bonus would then matter, as would the cost of earning it. A small increase in GFA tied to expensive requirements might do little to improve the financial considerations of developers. But a more generous incentive could narrow the gap between what owners expect, and what developers can afford to pay.

However, this raises the possibility of a dilemma, as owners may then raise their reserve price when they learn that developers could build more units in the future redevelopment. That could absorb much of the benefit, resulting in no net change.

We do wonder if potentially, a similar effect might take place in the commercial market.

But in any case, it’s too early to tell if this news is truly significant for residential developments.

In the end, what should we look out for if these changes are passed? If extra GFA is awarded to incentivise developers to include more energy saving features in future condos, or increase the amount of greenery, those benefits really should be rechecked a few years after the project’s completion.

This will discourage anyone from trying to game the system, and becoming better at qualifying for bonus GFA without delivering the intended results.