The furore over outdoor spaces

In a blog post on Monday, Minister for National Development Khaw Boon Wan said buyers of Executive Condominiums with outdoor spaces might not have realised that they were being sold space that the developer did not pay for.

This is because outdoor roof terraces and private enclosed spaces on the ground floor do not count as gross floor area (GFA). This policy was put in place to encourage developers to build more communal space for the enjoyment of residents.

However, as developers sell more such spaces for private use, the amount for communal use may be significantly reduced, Mr Khaw said.

But these sales of outdoor spaces have been widely practised by developers for years.

The only difference now is that most of these spaces have been concentrated in just a few prized premium units, whereas in the past, developers tried to include a little outdoor space for most units.

As it is now a common practice, most developers would have taken into consideration the additional profits that could be made from the “free” outdoor space when submitting their bids for state land.

So, with the exception of the very first few developers who conceived the idea of selling outdoor space, these spaces did not come cost-free as they had been indirectly paid for via the higher bids.

If additional development charges for such spaces are passed on retrospectively to buyers, it will constitute double charging. Additional charges may also result in higher prices as developers will surely try to pass on these costs to home buyers.

A developer may even use the outdoor space as a marketing tactic to lower the home price when stated in dollars per square foot, making the unit price appear cheaper than it actually is.

This is where the new transparency rules for showflats will make a difference and where some restriction on the size of such spaces may be helpful.

In his blog, Mr Khaw also noted the public indignation at the development of super-sized luxury ECs with huge outdoor spaces for buyers who did not appear to be from sandwiched households. One such luxury EC unit in Tampines was sold a few weeks ago for S$2.1 million.

Part of the negative publicity surrounding ECs today derives from the high prices at which some units have been sold. Most of these units have huge outdoor spaces and I can understand why these EC developers chose to concentrate much of the space in just a few units.

They probably reasoned that because of the income ceiling cap, the majority of buyers would have lower affordability levels than those buying private apartments.

For most of these buyers, whatever space they would be getting, they would want it to be livable space and not outdoor space.

The developers probably felt that it would be more difficult to get many buyers to pay for a little outdoor space each. On the other hand, it would be much easier to get just a few buyers to pay for a lot more outdoor space when the EC is sold as a luxury unit.

The buyers of these luxury ECs are obviously not from the sandwiched households. But this is not anew loophole. In the past, “highly qualified” couples had chosen to apply for new Housing and Development Board flats before they started work or while one of them was changing jobs. This helped lower the combined household income and allowed them to qualify for new public flats.

When the Pinnacle@Duxton was launched for sale some years ago at what was then “record prices for new flats”, I had also wondered whether some of the buyers deserved subsidised housing.

By Colin Tan – Head of Research and Consultancy at Chesterton Suntec International

Source : Today – 11 Jan 2013

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