Impact of JTC Corp's Industrial Property Divestment Plan on Costs for Small, Medium Enterprises (SMEs)

Mr Teo Siong Seng asked the Minister for Trade and Industry (a) what is the impact of JTC Corp's plans to divest its industrial property portfolio on local SMEs; (b) whether there are plans to review the divestment plan; and (c) whether the Ministry would consider providing sufficient affordable industrial land or premises to enable promising local SMEs to continue operating and developing their capabilities to the fullest in Singapore.

The Minister for Trade and Industry (Mr Lim Hng Kiang): Mr Speaker, Sir, in 2005, the Government decided to divest JTC's generic multi-storey, multiple-user factory space, or what is commonly known as flatted factory space. As explained in my speech during the Committee of Supply debate last month, there was already a competitive market for flatted factory space in the private sector. JTC's market share then was only 18%.

JTC's tenants were enjoying lower rentals than others. This created an unlevel playing field for other SMEs that were not JTC's tenants. Furthermore, JTC's lower rentals were undercutting private sector developers. If JTC had continued to remain in this segment of the market, it would crowd out the smaller developers. The divestment was therefore necessary to, first, level the playing field for all SMEs and, second, to promote the vibrancy of this segment of the industrial market.

The divestment of JTC's flatted factories has affected only a small proportion of SMEs because JTC's market share, as I mentioned just now, was only 18%. To ameliorate the impact of the divestment on the affected SMEs, JTC worked with the buyers to impose rental caps, for a period of up to three years. SMEs affected by the first phase of divestment in 2008 paid, on average, 6% to 25% less than market rates when they renewed their tenancies in the first three years after divestment.

The increase in rentals after this transition period may appear large to some SMEs, but this is partly because they had enjoyed lower-than-market rentals in the earlier three years.

MTI and JTC have been working to keep industrial space affordable. First, JTC continues to develop innovative infrastructure projects, some of which help reduce business costs for SMEs through innovative designs or the up-front provision of capital-intensive facilities that can be co-shared. Examples of such projects include the Business Aviation Complex and the upcoming MedTech Hub and Surface Finishing Complex.

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Second, we ensure that there is a sufficient supply of industrial land to meet SMEs' demand for industrial space. Through the Industrial Government Land Sales (IGLS) programme, about 20 hectares of land was released every half year in 2010 and 2011. This is about 30% higher than in 2008 and 2009. In the first half of 2012, an even larger amount of land – 24 hectares in total – has been made available through the IGLS programme. For this IGLS programme, we also released several small sites with shorter tenure, to satisfy the demand of industrialists, including SMEs, who require customised facilities and thus prefer to build factory space on their own. With shorter tenure, the sites will also be more affordable.

To ensure a timely supply of space, we have also shortened the project completion period for IGLS sites, from eight years to between five and seven years.

These measures will help ensure that our industrial space remains affordable. Industrial rentals have, in fact, moderated recently on the back of incoming supply and weakening demand. Industrial rentals grew by only 0.4% between 3Q2011 and 4Q2011, compared to 5% for the same quarters of the previous year. We expect rentals to continue to moderate as more supply comes on-stream, and with the weaker economic climate.

Mr Teo Siong Seng (Nominated Member): I thank the Minister for the explanation. Would JTC consider for the remaining of the factory space, instead of divesting to REITs, to sell to the factory owner?

Mr Lim Hng Kiang: We are at the tail end of the divestment process and these are just smaller flatted factories. We are considering either trade sales in which we sell individual buildings or if the owners and occupiers are able to form bodies, we would be happy to look into selling to them too.