High building costs of underground space a big challenge

Emilyn Yap, Business Times 3 Feb 10;

TECHNICAL complications on creating underground space aside, how would the government value subterranean land?

The Economic Strategies Committee had an eye on this issue when it proposed that the government draw up a subterranean land rights and valuation framework. Some industry watchers believe that underground space can be valued based on its income potential, but overcoming high building costs and reaping sufficient yield would pose challenges.

According to the National University of Singapore's School of Design and Environment Associate Professor Willie Tan, the valuation of underground space would be the same as that for other properties.

For instance, the value could be based on the space's income potential less cost. 'If this cannot be covered, then (the space) does not get built,' he said. 'If one looks at an underground shop, key features such as location, access, size, design, safety and quality still hold.'

Cushman & Wakefield Singapore managing director Donald Han said that underground space can be valued based on the rents it can fetch. Rents at some retail outlets underground can be some 15-20 per cent lower than those above ground, he added. Market observers raised high construction costs as a key concern. Mr Han reckons that the move to venture underground could take time because of this, unless technological advancements reduce costs in the future.

Dr Tan pointed out that because of the high costs, underground space 'requires high-yielding land uses to pay their way'. Alternatively, the space should support high density movement of people or goods. As a result, it might be more suitable for commercial rather than residential uses. Underground space can be used mainly for storage facilities, malls, hotels, subway stations, car parks and infrastructure. It would not be suitable for industries which generate a lot of noise, he said.

Jones Lang LaSalle South-east Asia research head Chua Yang Liang believes that initial ventures are likely to be state-driven because of the high costs. The government could perhaps subsidise part of the land price to encourage private sector involvement later, he said.