Here's absolutely everything you need to know about URA's new guidelines on shoebox units

Learn why it's actually positive for project sales of smaller units within the CCR & OCR.

After market close on 4 Sep 12, the URA issued a new circular providing guidelines for shoe-box developments in the OCR. The new guidelines consist of a new development unit (DU) limit, computed by taking maximum allowed gross floor area (not including any bonus GFA) divided by 70 sqm (c. 753 sqft).

According to Nomura Research, one way to think about this is that for every unit in a development built under 70sqm, the developer would have to offset by way of a unit larger than 70sqm, so as to avoid underutilising the maximum amount of GFA. 

"The “70 sqm” figure is thus arbitrary and can be adjusted as URA deem necessary. For instance, certain areas like Kovan and Joo Chiat / Jalan Eunos have the figure set at 100 sqm so as to reduce infrastructure strain," it said in a report.

Furthermore, Nomura said that the new guidelines to take effect in 2 months will not impact previously approved projects.

"The new guidelines will impact all new developments in the OCR region, including the residential components of mixed-used developments. This measure is clearly aimed to discourage predominantly shoe-box developments in the suburban areas (OCR). The new guidelines are to take effect from 4 Nov 2012 and they do not impact previously approved development applications," it said.

As for the impact to property developers, Nomura sees minimal impact and any stock price reaction will likely marginal.

"On first look, we see minimal impact on the developer stocks that we cover. The new guidelines are not entirely unexpected, in our view, since shoe-box units have been a thoroughly debated topic in the last few months.
Since the new measure only targets upcoming shoe-box developments outside the OCR, this may actually be positive for project sales of smaller units within the CCR & OCR region, with the URA intervening to cap upcoming supply," it said.