Extract of COS on MTI – REITs & Tourism Development Fund

Affordable rentals

Mr Yee Jenn Jong: Since the first REIT was formed here in 2002, REITS have grown to be a dominant force in the space leasing industry. The costs of rents remain a huge concern to SMEs. In an article in TheStraits Times last month, industry players pointed to REITS as the main driver of increases in retail and industrial rents. We saw closures large and popular bookstores with rentals cited as a main cause. Last year, industrial rents jumped by its highest level in 14 years. I hope the Ministry can actively look at how rental rates can be brought done.

A good place to start is at JTC. Since 2008, JTC has divested 2 million square feet of industrial space to REITS. I urge JTC to stop all future divestment. I also hope JTC can resume its original role of building and leasing affordable industrial space again to SMEs, rather than relying only on land sales and market forces.

The Minister for Trade and Industry (Mr Lim Hng Kiang):

.. (other replies) ..

We recognise that Singapore cannot be a low-cost location and we have to accept pricing costs because of our limitation in space and, more importantly, our shortage of labour. Our best approach is really productivity. More specifically, Mr Inderjit Singh and Mr Yee Jenn Jong asked how we can help our SMEs manage rental increases and also how JTC can play a more appropriate role.

Let me use this occasion to explain the role of JTC. The industrial property market comprises four main sectors – land, specialised facilities, standard factories, and generic multi-storey multiple-user factory space. In the first segment, JTC allocates industrial land to companies to build their special purpose facilities, provided these companies meet our criteria in terms of value-add, linkages to other sectors of our economy as well as jobs creation. In the second segment, JTC provides innovative industrial facilities such as the Jurong Rock Caverns, the Very Large Floating Structures (VLFS), Offshore Marine Centre, Seletar Aerospace Park, Clean Tech Park, Med Tech Hub, etc. This is to meet the specialised needs of these key clusters. The third segment is standard factories where the investors need a quick start-up and can fit their operations in JTC’s standard factories. In all these three segments, JTC has a very important role to play and will continue to do so. For such premises, JTC will price the industrial land judiciously. We cannot price industrial land cheaply in Singapore because land is at a premium. But at the same time, we cannot price ourselves out of the competition. We do benchmark our industrial land price against regional alternatives. By and large, I think JTC’s industrial land prices are set at a fair and competitive level for these three segments.

For the fourth segment, the generic multi-storey multiple-user factory space, or what is commonly known as flatted factories, the Government decided in 2005 that JTC should exit this segment. There is already a competitive market for flatted factory space in the private sector. JTC’s market share was only 18% at that time. JTC’s tenants were enjoying lower rentals than the others. This was inequitable. JTC should be concentrating on the first three segments which are more challenging rather than undercutting the flatted factory private sector players with JTC’s lower rentals. That is why JTC divested their flatted factories in order to ensure a level playing field in this segment. It is also in line with the “Yellow Pages” rule where Government would exit from market segments where there are already active private sector players.

I would also like to address Members’ concerned, especially Mr Yee Jenn Jong’s concern, about the impact of the Real Estate Investment Trusts (REITs) on rentals. Today, the seven industrial REITs compete with the other property developers and landlords. Like any other landlord, they have to compete in the rental market to attract tenants. REITs are part of the competitive rental market where no single player should have the market power to influence rentals significantly. I would like to assure Members that we will not hesitate to intervene if we see evidence of collusion or abuse of market dominance by the REITs.

While JTC may have exited from the flatted factory market segment, we continue to monitor it vigilantly. Rentals have indeed gone up, in tandem with our economic recovery in 2010. To keep industrial space affordable, we have increased the supply of industrial land to meet the demand. In 2010 and 2011, under the Industrial Government Land Sales (IGLS) programme, about 20 hectares of land was released for every half of the year. This is about 30% higher than in 2008 and 2009. To ensure a more timely supply of space, we have also shortened the project completion period for the IGLS sites from eight years to between five and seven years.

Tourism development fund

Mr Yee Jenn Jong: In January 2005, Minister for Trade and Industry Mr Lim Hng Kiang announced the $2 billion Tourism Development Fund to support the Tourism 2015 targets of doubling visitor arrivals to 17 million and tripling tourism receipts to $30 billion by 2015. This Budget has an injection of an additional $905 million into this fund. Can the Minister share: (i) how were the original funds used and why are additional funds needed, given that the $2 billion was to last until 2015; (ii) what projects will be funded by this additional amount and how are these projects different from those unveiled in 2005; (iii) is STB on track to achieve the 2015 targets? What new outcomes and targets can we expect from this funding beyond the original targets; (iv) lastly, how much of tourism receipts is contributed by gaming revenue, and should gaming revenue even count towards the target of $30 billion in tourism receipts, unless it is MTI and STB’s role growing gaming revenue?


The Second Minister for Trade and Industry (Mr S Iswaran): Thank you, Mr Chairman. And may I, first, thank all the Members who have raised issues pertaining to R&D, tourism and energy, and I will respond to them in turn in the context of our efforts to restructure for growth.

… (other replies) …

Let me now turn to tourism- a sector which has grown well and has further potential. Mr Yee Jenn Jong asked how we spent the $2 billion in the Tourism Development Fund (TDF). The fund was launched in 2005 with a five-year funding commitment period. And the reason you have a five-year commitment period is because many of these projects have a gestation period. You invest early in order to let the infrastructure kick in, then contribute to your tourism spend. The long-term target is $30 billion of tourism receipts and visitor arrivals of 17 million by 2015. The fund has supported many major projects – Formula One, Gardens by the Bay as well as the International Cruise Terminal and River Safari, the latter two are scheduled to open later this year. It has also brought in numerous events and helped our tourism companies build capabilities. These, together with private sector investments such as the Integrated Resorts, have transformed our tourism sector and kept us on track to achieving our long-term targets. In 2011, Singapore had 13.2 million international visitors and Tourism Receipts of $22.2 billion. This is a 13% increase in visitor arrivals and 17% increase in the tourism receipts. To respond to Mr Yee, tourism receipts include spend on accommodation, spend on shopping, spend on entertainment, so it is a collection and not segmented into particular parts alone. STB’s strategies cannot segment the spending activity of tourists in Singapore to the degree that he has asked.

This growth in tourism has also created more and diverse job opportunities for Singaporeans. Let me give you a couple of examples, Catherine Ho is a former Warrant Officer with 26 years of service in the SAF. Now, she is a theme park manager in charge of park operations in Universal Studios Singapore, assuming there are some relevant skills there. She is now helping to set up operations at the upcoming Marine Life Park. Another example is Gwern Khoo. A chef in the Celebrity Chef Restaurant Waku Ghin in Marina Bay Sands, who has been identified by Chef Tetsuya as a promising local talent with plans to send him to Sydney for further training. He has come a long way from his days at SHATEC and from helping out at his father’s duck rice stall. And these are some examples of how the growth in our sector has created interesting and diverse opportunities for Singaporeans.

The Formula One Race (F1) has also been good for our tourism sector. Besides generating economic benefits and creating a good platform for business networking, F1 has helped to brand Singapore as a global city with a vibrant lifestyle and this has other collateral benefits for us as an economy and as a country. In response to Mr Liang’s question, I would say that on the whole, the benefits of F1, both tangible and intangible, have outweighed the costs. Yes, there are certain disruptions like the road closures, and this is something between the Government agencies and the race promoter, there has been significant effort to reduce that by more than half to about six days now, compared to where we were at the start, but we need to continue to work on this. Overall, the benefits have been significant and they outweigh the costs and any decision on an extension will have to be premised on the value that we can continue to derive from such an event. The Government will make this decision only after carefully weighing all factors.

We must build though on these significant tourism inroads that we have already made by seeding the sector’s next stage of growth. We must especially focus on quality or yield-driven growth by attracting tourists to visit more often, to stay longer and to spend more. That means enhancing the tourism experience through creativity and innovation, higher capabilities and productivity, and superior service standards. For this, we are injecting $905 million over the next five years as the second tranche of the Tourism Development Fund.

Mr Yee and Mr Liang have asked what strategies this second tranche will support. First, we will invest $300 million to build on Singapore’s positioning as an international Lifestyle and Business events hub through the Tourism Events Development Scheme (TEDS). It will seed and anchor best-in-class events, whilst bringing in international conferences and exhibitions as well as leisure and lifestyle events.

Second, we will co-create new tourism products with the industry, and rejuvenate existing products, through the Tourism Product Development Scheme (TPDS). A sum of $340 million will be set aside to drive new concepts and ideas for tourism products.

Third, we will invest $265 million to enhance capabilities in our tourism-related enterprises as a part of our key drive for higher tourism yield. Mr Dhinakaran raised the issues of manpower and the challenges faced by some of the companies in the sector. Substantively, the points on DRCs and levies have been dealt with in the Finance Minister’s discussion earlier on the debate, and also earlier in the COS discussion. Let me complement that by talking about what we are doing specifically in one or two areas. STB drives a productivity roadmap for the sector, and what it seeks to do is increase the attractiveness of jobs through redesign and reengineering of business processes. This will attract more Singaporeans to come and work in this space. We are open to more ideas from the industry on how else we can increase local labour force participation rate.

Mr Yee Jenn Jong: Sir, I have two categories of questions relating to the two cuts that I have made. The first is regarding the strategy of using land sales to manage the cost of industrial space which the Minister of Finance and also the Minister for Trade and Industry mentioned today. I like to seek clarity on how Government price the land sales. Last year there was this Paya Lebar industrial site that was not awarded because it went below the price. So there is some perception that during economic boom, developers would bid very high prices and we award to the highest bidder, but when the market is down then we will not award. So, will this be artificially keeping prices up so that it is quite impossible to have rent rates going down?

I am also concerned that there is the effect that REITS being a dominant force in the market now, they are actually price maker in the rental market. So, if we take the rent benchmark to price land, then we will have a cycle that it can only go up, it can hardly come down. So I need clarity on this.

The second question that I have relates to the Tourism Development Fund. I am not sure if I missed out something, I just want to understand. On the committed amount to the Tourism Development Fund since 2005, is it $2 billion plus an additional $905 million? Has the KPI still being set unchanged to 17 million for tourist arrivals and $30 billion in tourism revenue?

I also just want to clarify the question that I made regarding gaming receipts. I notice, for example, that tourism receipts jumped 49.6% in 2010 and that coincided with the opening of the two IRs in January and April respectively. I also notice that gaming revenue is classified under “Sightseeing and Entertainment”. So my question – for the original $30 billion receipt target in2005, did it actually factor in gaming as revenue?

Mr Lim Hng Kiang: Sir, let me take the first question and Mr Iswaran can take the second question.

Government land sales procedure is very well documented. It is the same procedure whether it is industrial land sales, commercial land sales or residential land sales. Basically, land is protected. It is considered part of the old reserves. Therefore, the way we sell land in Singapore has to go through the same processes which are agreed to with the President. Essentially, we must sell land at a competitive market rate; otherwise, we are not preserving old reserves. And to do so, we need evidence that there is competition. And if there is competition, then we go at the going market rate of the highest tender. If there is not enough competition, then of course we have to satisfy the Chief Valuer, who is.an appointment made by the Elected President, to make sure that we are selling land at the right price and not under pricing it. So that is the procedure for the sales. So we can have sales that come in with very few tenderers and still being awarded, because the Chief Valuer certifies that this is reflective of the market price.

Mr S Iswaran: Sir, I thank the Member for his question. Let me take the second point first. I am not sure why he is so fixated on this gaming revenue element but let me elaborate.

Firstly, when we do a tourism revenue forecast, we take into account all dollars spent by the tourists. I do not think we split them up, and whether expenditure on shopping should be under another body and so on. We look at the total amount tourists spend. And this is how STB did its forecasting when it launched its programme for the Tourism Development Fund.

Importantly, and I think this is important to register, this is a purely private sector investment. There was no Government money used on the Tourism Development Fund or any other source to support this project. So, essentially, these are projects that were conceived in order to enhance the tourism environment as part of a larger ecosystem in Singapore. And it is difficult really to start splitting out what is the tourists’ spending because of the IRs, what is the tourists’ spending because of other new entertainment and other new products we have in Singapore. So we look at it collectively as part of the overall wallet and the share of the wallet that we are able to draw into Singapore.

The second question, which is his first, on the Tourism Development Fund, yes, it means that there was $2 billion in the first instance as a first tranche, and there is now $905 in the second tranche. So the question is: why are we having a second tranche? Let me explain again because I think it may not have been clear for the Member. We put in the first tranche in 2005 and we said that there was a commitment period of five years, because these investments would need to be incurred early in the period in order to generate the returns over the longer term, and that is what we are seeing now. Many of the investments we made in the first five years are now beginning to yield results for us, and some are still coming on-stream, such as the International Cruise Terminal and the River Safari. And secondly, this new tranche is not just about achieving these numbers that we talked about. It is to go beyond that and drive our yield driven tourism strategy and also to raise productivity and create more job opportunities in Singapore.

… (other replies) …

 Mr Yee Jenn Jong:Thank you, Mr Chairman. I just want to refer to my question and what the Second Minister said that why am I so fixated about this gaming revenue. Maybe I should rephrase it. I am not so fixated about it and I also understand that it is private investment. TDF will not spend on it. Maybe I will rephrase my question this way. When we set the $30 billion tourism receipt target revenue in 2005, did we envisage gaming revenue to be part of it, because gaming revenue is now a significant part of the tourism receipts by the statistics that we capture? Should we not look at the KPI of our tourism investment to be based on the $30 billion without the gaming revenue?

Mr S Iswaran: Mr Chairman, I thank the Member for clarifying his fixation – sorry, lack of fixation – on the matter. When the target is set, we are talking about tourism spending as a whole. In other words, when a tourist comes to Singapore, what is he spending his dollar one? We do not preclude future innovations or new developments in the market which might encourage the tourists to spend more. Let me use an alternative example. We are now going to have an International Cruise terminal, which presumably will boost our cruise industry in Singapore and bring more tourists to Singapore who will buy cruises. Should that be excluded from tourism spending forecasting or calculations? So, the way I put it is at the time this target was drawn up and the Tourism Development Fund was set up, there was a clear goal that these are the resources, this the mission that the Government gave the STB. This is the goal, this is funding available, now go forth and seek ways to make it happen, and that is what they have done.


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