What is GFA harmonization – How does it affect you as an investor ?

If you have been shopping around for a new launch recently, you would have come across this term GFA harmonization. 

It is normally applied in the context of classifying new launch developments, i.e “This project is from the post GFA harmonization era”.

What stands out more is that these developments that launch in the post GFA harmonization era tend to have significantly higher psf pricing then an identical new launch that has not been impacted by GFA harmonization. 

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Why does understanding GFA harmonization matter to you as a property investor ?

Why does it even matter to you ? You are just out there searching for the next property that can make you the next $500k profit. 

#1 – Avoid falling into the GFA pricing distortion trap

It matters as the lack of understanding of GFA harmonization and its effects on a new launch’s psf pricing will result in you making the wrong investment decision. 

Consider the following example. 

Consider the following 2 new launch projects, One is a pre GFA harmonization project, while the other is a post GFA harmonization project. 

If you were to strictly evaluate these 2 new launch projects by their PSF pricing, which one will you think is a better deal. I would reckon you select Project A for its lower PSF pricing.  

Evaluation by PSF pricing without considering impact of GFA Harmonization

But let’s consider the impact of GFA harmonization on Project B. Due to GFA harmonization, its developer will not be able to include air con ledges as a sellable space to buyers. 

#2 – Developing an apple to apple comparison 

Now if you were to use purchase quantum instead of PSF as a metric, you would realise that Project B is a much more value for money option. 

The fact that developers did not include aircon ledges into the sellable space, it results in you paying a lower purchase quantum as higher PSF pricing is factored over a smaller square footage. 

Evaluation with a understanding of GFA Harmonization

What is Gross Floor Area (GFA) ? 

Now that we understand the importance of developing a good understanding of GFA harmonization. Let’s formally start to find out more about GFA harmonization and its impact on developer’s pricing. 

Gross floor area is calculated by multiplying the site’s plot area by its designated plot ratio. The site’s plot area is the surface of the land that it is sitting on and its plot ratio is how high and dense you can build on that piece of land. 

Consider the following example. 

Site area – 20,572 sqm

Plot ratio – 3.5

Gross Floor Area = 20,572 x 3.5 = 72,003 sqm

What is GFA Harmonization ?

On paper GFA harmonization is the standardisation of GFA measurements across all government agencies like URA, SLA and BCA. Prior to GFA harmonization, each of these agencies used different standards to measure gross floor area of a development. 

GFA harmonization resulted in the following impact on a developer. 

What is its impact on Developers ?

Out of the 6 changes highlighted above the following 3 has the greatest impact on Developer’s costing and impact on unit selling price pass on to buyers like us. 

Aircon ledges

• Prior to GFA harmonization, aircon ledges are considered free space to developers, not to be accounted for in GFA calculation. Post GFA harmonization, it is to be included as part of GFA, no longer free for developers. 
• Post GFA harmonization, Aircon ledges are not to be included in the sellable space of a unit. You will not see aircon ledges being added to the square footage you are purchasing. 

Balcony

• Prior to GFA harmonization, balconies are considered free space to developers, not to be accounted for in GFA calculation. Post GFA harmonization, it is to be included as part of GFA, no longer free for developers. 

Void Space

• This is applicable to all your high ceilings in penthouses. 
• Previously, developers are able to add the high ceiling air space into the sellable space to be presented to a buyer in the floorplan
• Post GFA harmonization, void spaces i.e high ceiling air spaces are not to be included in the floorplan. 

Resulting Developer’s Action due to GFA Harmonization

• Developers reducing bids for land, to account for the increase in cost of building air con ledges and balconies.
• Reduction in marketable unit size for each unit type for all launches post GFA Harmonization.
• Developer’s may not be keen to build penthouses with high ceilings or units with voidable space.

Things to note for investors due to the impact of GFA Harmonization

Scoping it down to things that matters the most to investors, the following are pointers to look out for when evaluating new launch projects post GFA Harmonization. 

#1 – Decrease in developer’s land bid prices

One phenomenon to be taken note of is the decrease in developer’s land bid prices post GFA Harmonization. 

Word on the street is that developers are developing negative sentiment over the real estate market moving forward and are reducing land bid prices. 

But what’s more accurate is that developer’s are decreasing bid price to account for the increase in development cost due to GFA harmonization and by no means they are bearish on the real estate market moving forward. 

Will lower developer’s land bid price translate to lower selling prices ?

Another misconception is that as developers bid and secure their land at lower prices, they will launch it at lower prices for buyers. 

This is again a misconception and it is highly unlikely that developers will be launching their units at below historical selling prices. 

Consider the following example of Tembusu Grand, a pre GFA harmonization project vs Emerald of Katong, a post GFA harmonization project. Despite securing the land at a much lower price, the developer of Emerald of Katong did not launch it at a lower price compared to Tembusu Grand. 

Tembusu Grand Pre GFA Harmonization Project vs Emerald of Katong Post GFA Harmonization Project

How do you deal with this as an investor ?

The common use case for this is to estimate the launch price of a project using a developer’s land breakeven price.

If not accounting for the additional cost of constructing air con ledges. It will result in an understatement of post GFA harmonization project’s estimated launch price.

To account for this, we will need to factor in an additional 5% to the developer breakeven price. And from there make assumptions by marking up 15 to 20% to estimate developer launch price.

#2 – Distortion in PSF pricing resulting in Post Harmonization project having higher PSF

One significant change caused by GFA harmonization is that developers are no longer able to list the air con ledges as sellable strata space in the floor plan for a unit. 

This results in a reduction in square footage for all unit types marketed post GFA harmonization. 

With the goal of generating the same profit margin, the developer will still be aiming to sell the unit at the same price as compared to a pre GFA harmonization project. 

When you take the same purchase quantum and divide it by the reduced square footage, you would see a significantly higher PSF for post GFA harmonization projects. 

How do you deal with this as an investor ?

If you still like to use psf as a unit of comparison, then you will need to normalise the psf of the Post GFA harmonization project to account for the AC ledge that is being left out. This will then allow you to develop an apple to apple comparison for both the development. 

To do that, you can simply add 5% of the square footage back to the total footage of the post GFA harmonization project. 

#3 – Future exit buyers will rely less on PSF and more on purchase quantum 

Due to the distortion in psf pricing caused by GFA harmonization, there can be a shift in buyers placing a greater emphasis on using purchase quantum vs psf as a metric for comparison between projects. 

There are several reasons that support this shift. 

Purchase quantum nullifies the psf price distortion caused by GFA harmonisation. 

Purchase quantum is a composite metric that takes into consideration both PSF and square footage. By using purchase quantum as a measure, buyers are able to account for both the psf increase and the removal of air con ledges and void spaces when comparing projects. 

Purchase quantum directly affects affordability

The final purchase quantum has a direct impact on the loan that a buyer is required to take and whether he or she is eligible for that loan quantum. 

Consider the example, comparing affordability of a pre GFA harmonization project vs a post GFA harmonization project. 

#4 – A greater awareness for floor plan efficiency

Due to the necessity to understand what goes into the floor plan for pre and post GFA harmonization projects. Buyers will become more mindful of what goes into the floor plan and will prioritise and value floor plan efficiency over size.

#5 – Potential Misdirected Selling Point for Pre GFA Harmonization Project

I have once come across this misguided selling point for a pre GFA harmonization project. The agent was saying that you should consider buying the neighbouring pre GFA harmonization project as a new project that is post GFA is launching in the area. 

It was marketed on the pretext that the pre GFA harmonization project has a more advantageous PSF pricing as compared to the post GFA project. 

I believe this is a selling point that merely hinges on the “eye trick” i.e the psf price distortion is not sustainable. Buyers will eventually revert to using purchase quantum as comparison or have their agent normalise the psf for an apple to apple comparison. 

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List of development that have undergo GFA Harmonisation

• Lentor Mansion
• Emerald of Katong
• Nava Grove 
• Novo Place

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