Impact of REITS on Rentals

Mr Zaqy Mohamad asked the Minister for National Development (a) if he will provide an assessment on the REIT segment and its influence on rising commercial rents for businesses; (b) whether the Ministry has performed any studies on the difference in rental and real estate valuations between commercial buildings or shopping centres run by REITs and non-REITs; and (c) what is the Government's assurance that commercial rents remain affordable to local businesses.

Page: 779

Mr Khaw Boon Wan: Real Estate Investment Trusts (REITs) are publicly-listed trusts that own and manage a portfolio of real estate properties which could include shopping malls, offices, hotels and serviced apartments. REITs are passive, income-generating investment vehicles and its activities, manager and trustee are subject to MAS' regulations and guidelines. For instance, REITS are required to obtain an independent valuation when acquiring a particular property.

Apart from this, the manner in which a REIT manages its properties is similar to that of any other commercial real estate company. Rentals are determined by a number of factors, including the type and quality of the properties that they own, how well they manage these properties, and, most importantly, broader economic fundamentals, such as GDP growth. These factors determine rentals and real estate valuations of commercial properties more than whether they are owned by REITS or non-REITS.

Currently, there are eight commercial REITs in Singapore, which together own about 11% of the overall stock of office and retail space in Singapore. Each REIT will have to compete with other REITS and developers, and is unlikely to be able to significantly influence rentals in the property market.

The Government's role is to ensure an adequate supply of commercial space to meet medium-term demand. Based on committed projects in the pipeline, we will have about 200,000 square metres of new office space and 90,000 square metres of new shop space per annum over the next five years. This is significantly higher than the historical take-up rate.

While commercial rentals have increased since 2010, after our economy emerged from the last recession, the increase has been moderating since the beginning of 2011 and commercial rentals remain below their previous peak in mid-2008. Some analysts suggest that commercial rentals may decline this year.

We will continue to monitor the commercial property market closely and promote a stable and sustainable market where rentals remain competitive and affordable for businesses.