The Straits Times carried an article today on “Childcare crush sees rents, fees shoot up” (ST 21 Sep 2012 page A8). The report cited keen competition for limited new childcare centres that has caused rents to spike from $10,000-$20,000 per month five years ago to $30,000 to $40,000 per month in recent tenders. This has translated into rise of monthly childcare fees of hundreds of dollars per child in this period.
The article highlighted perfectly the situation I had presented in parliament last week.
Childcare fees has been rising, fairly rapidly in the recent two years. Rent is a big issue. Since the start of the Anchor Operators scheme in 2010, the number of HDB void deck centres available to private and non-profit operators outside of the Anchor Operator scheme are few. From MCYS’s website, I see around 5 available for each category a year. Each of the two Anchor Operators however, opens around 25 centres a year, for a total of around 50 centres between both. They seem to get their sites from unpublished quotas. Anchor Operators pay $1,000-$2,000 rent per month per centre, based on MCYS’s data of $2-$4 per sqm and typical size of 400-600 sqm.
It is easy to work out the mathematics. A typical childcare centre will have an MCYS approved capacity of 70-100 children, depending on the size of the centre. A centre operating at over $40,000 per month rent will have to charge at least $400 more per child per month compared to an Anchor Operator renting at $1,000 per month. This is based on a maximum enrolment of 100 children. If approved capacity or enrolment is lower than 100 children, they need charge more than $400 in monthly childcare fees just to recoup the cost due to rent differential.
Anchor Operators also get set-up grants (over $100,000 per new centre) and other grants such as for maintenance, learning resources and manpower. MCYS has said recurrent grants (excluding setup and maintenace grants) for Anchor Operators will reach $30 million per year.
Minister of State for MCYS, Mdm Halimah Yacob had stated in her reply to my adjournment motion last week that “we have seen growth in both the Anchor Operator market, as well as growth in the commercial sector”. To her, private operators are not impeded by Anchor Operators.
I will differ on this. The number of HDB void deck sites have become few since this scheme came into being. Operators have to go into commerial properties, which charge higher rents. When a rare new void deck space is made available, existing and aspiring new operators bid unrealistically high prices. They benchmark against commercial properties and may also have been frustrated by earlier unsuccessful bids at lower prices.
This will in turn affect existing centres because when their tenancy is up, HDB will look at market rents and adjust their rental rates accordingly. Recent high bid prices will drive up industry average rental, and cause HDB to increase rental charges.
Right now, there is a shortage of childcare places due to rapidly rising demand. Parents are switching from 3-hour kindergarten programmes or from grandparents’ care into childcare. Many parents have complained to me that they have to wait for more than a year to place their children in an affordable centre. Hence, they have no choice but to enrol with a private operator, despite fees being about $200 more. So there is still sufficient current demand for private operators’ services, despite higher fees due to higher rentals.
MCYS will select another 2-3 Anchor Operators. Anchor Operators will use up almost all the new available void deck centres. When the number of places by Anchor Operators catches up with demand, parents will switch out of private operators due to fees. Private operators will then feel the pinch. Many will close down. They are already operating with tight margins due to rising manpower and rental cost. Indeed, speaking recently with staff at some private centres, they complained of increasingly stressful work situation due to high staff turnover and their companies tightening control of costs. Anchor Operators with recurrent grants for manpower, are in a better position to retain staff and even recruit from other centres. This has caused an outflow of staff from other operators into Anchor Operators in the competition for limited trained staff.
It is a graudal process that is slowly but surely happening. We will be left with only Anchor Operators and high-end premium operators who cater to a different market from Anchor Operators.
The current two Anchor Operators are NTUC First Campus and PCF Sparkletots. They were selected in 2009 based on criteria that included: (a) $5 million paid-up capital, (b) non-profit and (c) non-religion and non-racial. The entire universe of childcare operators in Singapore in 2009 that could have met the criteria may well have been just two operators.
Mdm Halimah Yacob in her reply in parliament stated “The basic entry criteria to the scheme are made known. In addition to development grants and subsidised rental rates, Anchor Operators also receive a recurrent grant to defray the costs of recruiting and developing good quality teachers for their new centres. In other words, whoever wants to take advantage of the Anchor Operator scheme and wants to receive additional grants and support, is entitled to do so. It is open to them, even if you have a commercial entity who feels that it wants to do that, can always set up a non-profit arm. And if they qualify and fulfil the conditions, they are also eligible to become an Anchor Operator and receive the additional support from the Government.”
I find this very strange. What is the purpose of expecting a commercial operator to form a non-profit arm just to be able to enjoy these grants and privileges? It is like stretching your arm around your head to scratch your nose, when you could just scratch your nose directly.
We should be outcome-based, regardless of whether an operator is for-profit or non-profit.
We already know what the two current Anchor Operators can do. They charge around $640 in monthly full-day childcare fees afer receiving all the generous support from the government. If MCYS’s concern is affordability and quality, it can challenge any operator (private or otherwise) who wants to receive similar grants to charge at $640 or lower, while proving they can also run quality operations. As a keen observer and former participant in this industry, I am very confident there will be many players able to do that.
If private operators can do that, it will mean one of two things: either
(a) current anchor non-profit operators are not really non-profit; they make decent surpluses, or
(b) current anchors have not been operating efficiently to bring cost down enough for consumers.
In my parliament speech, I had cited some examples to show why I believe quality private operators are capable of beating the Anchor Operators at their game if offered similar conditions.
Our government seems to have an aversion for giving support to for-profit operators when it comes to childcare. However, when it comes to public transport, they see it fit to pump in billions into infrastructure and bus subsidies for SMRT and Comfort Delgro, both public listed entities. If our government is consistent, shouldn’t these two private transport operators be turned into non-profit operators since it is against our government’s principle to support private companies with grants for their operations?
I also fail to see why the scheme has to be for non-religious and non-racial groups. After all, MOE saw it fit to support schools run by mission groups, buddhist groups and various race-based associations. Is MOE wrong to support education by groups with such affiliations? What’s so special about childcare?
I believe the Anchor Operator scheme is ill-conceived. Granting another 2-3 operators and asking existing commercial operators to set up non-profit arms to qualify can only make matters worse. It will kill of all remaining low-mid cost operators, given they already face enornmous pressure from rising rental and manpower costs. Those receiving such generous support will easily kill off their competitors. It will reduce diversity. It will freeze our industry at the point when this selection for the next 2-3 operators will take place. After that, this group of 4-5 Anchors will corner the market by their sheer size and advantages, and with new childcare sites deprived for new players.
My proposal made in parliament is for an alternative model. In summary, it calls for:
- Government to organise all child care sites under its control (void deck, JTC, government buildings) in a managed low rent fashion. This would comprise more than half of all current child care sites in Singapore.
- Government to create or secure more sites, even negotiating with large private landlord as anchor tenant and building mega child care sites out of disused schools or on empty land next to primary schools.
- Sites can be grouped into package of centres and each package tendered out for all operators (private and non-profit) to compete fairly in based on concept, quality and affordable fees, and not on rent. Rent will be a prefixed low amount equivalent to what non-profit operators currently enjoy, at $2-$4 per square metre. Operators cannot adjust fees without the approval of the government or an independent council monitoring quality and fees of operators. Such package of centres should have a fixed tenancy period, sufficiently long enough for operators to meaningfully recouperate investment and thereafter be subjected to contestability again to see who can continue to better run these sites.
- Recurrent grants and other support system should not be given only to non-profit operators but to all who are operating on these sites which are under strict fees and quality guidelines.
I believe this alternative will be more outcome-based. We will be focused on affordability and quality, while providing ongoing diversity. Contestability will keep all operators on their toes, ensuring that no group of operators are annointed with special privileges that can allow them to sit back and relax, knowing that the competition can never beat them because of their special position.
In the end, consumers will benefit from this alternative model.