(Delivered in Parliament on 11 September 2017)
Mr Speaker sir, the Jurong Town Corporation (Amendment) Bill provides for the transfer of HDB’s industrial properties to JTC. With this transfer, all public sector industrial properties will be consolidated under one agency.
I do not object to the thrust of this bill, and I support its enablement of the state to undertake more holistic master-planning of industrial estates across Singapore. However I do have a few clarifications and suggestions.
Firstly, in terms of mitigation of the impact of the transfers, it is noted that both agencies involved – JTC and HDB – have said they will engage tenants and lessees, as well as relevant business associations, on any concerns they have about the transfer. This was referred to in a speech by Minister Lim Hng Kiang of MTI on 19 Oct 2016. I would like to ask if there will be any impact on ongoing negotiations on renewal of leases or will these negotiations continue along the same trajectory as prior to the announcement.
Secondly on the confirmation of undertakings transferred: clause 41 refers to a joint specifications of assets and liabilities by the two Ministers involved. If there are any disputes, will the Minister of Finance step in to determine the matter?
Thirdly, on offences conducted under the Act, currently, section 64 requires that the consent of the Public Prosecutor is needed before any proceedings can be carried out against any person. The reason for the repeal of this provision is not given. I assume that in this case, JTC lawyers can start proceedings on their own accord without the consent of the Public Prosecutor. Can the Minister confirm that and explain the rationale for that change?
Lastly Mr Speaker sir, I would like to talk about the role of JTC in our economy in broader terms.
In past debates in this House, the issue of the role of the state agencies – JTC and HDB – versus private developers in the market for industrial and commercial space has been discussed. I would like to return to this fundamental issue to seek some clarifications and pose some suggestions.
JTC holds a far smaller share of industrial and commercial space than in the past. In the COS debates in 2016 and 2017, this was highlighted by various members such as Mr Dennis Tan and Mr Chen Show Mao. This has, over the years, led to a situation where the rental and property-related costs faced by our SMEs are very high relative to most other countries.
Rental costs are not always the highest single component of the total cost structure facing SMEs and start-ups, though in most cases it is highly significant. But equally importantly, they are the one element of the cost structure that we can control and change to perhaps a larger extent than any other.
In Singapore, the state owns most of the available land – something that is more or less unique among developed countries.
I would like to ask – can we do more to make low-cost industrial and office space available to our SMEs? SMEs employ two thirds of workers. We need the SME sector to step up and do more of the heavy lifting in our economy to grow jobs and productivity, to become a thriving third pillar alongside MNCs and GLCs.
At the COS debate this year my colleague Mr Dennis Tan highlighted how rental costs were “found to be the second factor with the greatest impact on profitability, coming in after manpower costs.” He went on to say: “I hope the Government will consider conducting a major comprehensive historical and international benchmarking study on business rental costs to understand why rental costs rose so rapidly over the past two decades, and why, despite the Government’s efforts in recent years to release more land through the Industrial Government Land Sales (IGLS) programme so as to ensure more industrial space, SMEs are still feeling the squeeze. The study should also include how the cost of doing business in Singapore compares globally.”
At the COS debate this year I also pointed out how, even if business costs such as rentals have recently declined, in the absence of any confidence that such costs are going to be managed well in future, individuals may chose not to become entrepreneurs, since there is no degree of assurance that rentals will remain affordable in future, and a spike in rentals may push their business models into commercial non-viability.
Low cost today may not mean low cost tomorrow.
At COS 2016, my colleague Mr Chen Show Mao said: “Over the longer term, access to low rent premises has diminished, following the corporatisation of JTC assets as well as the commercial pricing of HDB rentals. …We call on the Government to not only keep commercial and industrial rental increases near or below inflation but also keep their absolute amounts manageable as part of the more serious effort to nurture SMEs as the third pillar. This may require actions to, first, take a long-term view on reducing business rentals and have JTC pick up, in part, their former approach of building lower cost industrial and commercial property, before many of their many properties were privatised.”
In his reply in 2016, Minister Lim had said: “..the Government believes in letting market forces set the rent, and we allow the private sector to provide the responses in supplying the demand. Where we intervene is where we recognise some possible market failures, for example, in start-ups where it is not so commercially viable to provide the space, the Government will step in, and, indeed, we have. JTC set up LaunchPad@one-north in 2015, and plans to build a network of LaunchPads around Singapore.” In 2017 MOS Koh Poh Koon said: “However, in terms of the market share, JTC industrial space currently constitute only 8% of all industrial space and we do not have the critical mass to influence overall market pricing.”
It would seem that the government as the largest land owner in the country has a choice – to release land to private developers of industrial or commercial properties; OR to develop the land under the umbrella of JTC to provide lower cost properties to SMEs and start-ups.
The government has accepted the principle that in certain cases, the state should step in to provide land at lower costs to SMEs and start-ups.
The down-side of doing this is, of course, fiscal cost. But it is not clear if the state providing lower cost industrial and commercial space would stimulate entrepreneurship and value creation in such a way that the incremental tax revenue from additional economic activity would partly or wholly offset the provision of such low-cost land.
Moreover, keeping JTC’s market share in the industrial and commercial market low while making ad hoc interventions to create pockets of low-cost space here and there also fails to address the concern that low cost today will not necessarily be low cost tomorrow.
So my questions and suggestions would be as follows.
Firstly, does MTI measure rental and land costs for industrial and commercial properties regularly and compare those costs to those faced by SMEs and start-ups in other developed countries? It would be useful, in my view, to benchmark Germany, Switzerland, Japan and Israel, which are countries known for thriving SME and start-up sectors.
Secondly would MTI consider forming a target for commercial and industrial land costs faced by SMEs and start-ups by benchmarking against other countries or cities which have been successful in stimulating start-ups and SMEs? This target would be formed by considering the cost to the state of providing such land against the revenue that the state would gain and the benefit to the economy and people of Singapore from the greater economic activity unleashed by such lower property costs.
At the risk of repetition, I make the observation here once again that the state owns most of the available land in Singapore and hence the government has a unique responsibility to consider such issues and make such choices in a manner that benefits the whole society.
And thirdly would MTI consider pursuing such land cost targets by JTC taking up a larger market share in the industrial and commercial property market, as was the case in the past? Attempting to control such costs through management of land supply to private developers is too blunt an instrument, given that there is never a perfect method of demand forecasting.
JTC taking a larger share of the market for industrial and office space would send a strong signal to SMEs that manageable space costs will be here to stay and won’t simply be gone tomorrow at the next market fluctuation, thus wiping out the viability of a business that could have taken the founders of the business years or even decades of hard work and foregone income to build up.
It could be argued that JTC providing low-cost rents would create excess demand and how then would we allocate the supply among competing companies? A points-based balloting system is one mechanism to do so. The principle behind such systems is reflected in other areas of public policy today, such as the allocation of school places for example.
Taking every effort to minimize industrial and commercial rentals and property costs is important to stimulate entrepreneurship and the SME sector to be the vital third engine of value and job creation that we need it to be.
It behoves the government to think through these deeper and fundamental issues relating to the pricing of land for industrial and commercial use and to provide the necessary assurances to all stakeholders about its commitment to control costs now and in the future, so as to unleash growth in SMEs and start-ups.