REDUCTION OF RENTALS FOR COMMERCIAL AND INDUSTRIAL PREMISES

Mr Yeo Choo Kok asked the Minister for National Development (a) whether the Urban Redevelopment Authority and Housing and Development Board will consider freezing or even reducing rentals for business or industrial premises and shophouses for this year in view of the present hard times and whether his Ministry has received any such request; and (b) whether the HDB will consider downward revision of the prices of its flats in the light of prices in the present property market.

Mr Teh Cheang Wan: Mr Speaker, Sir, the HDB and the URA systems of renting out business premises are different from each other. URA shop premises are let out on fixed leases of 2-3 years. The rentals of URA premises are determined at the commencement of the leases with reference to market rates, On expiry of the leases, rentals are reviewed and adjusted in accordance with prevailing market conditions.

In the case of the HDB, premises are let out on monthly tenancies and rentals are determined by the tender system. There are no specific time periods at the end of which rentals are revised. The HDB has since its inception only revised shop rentals once. This was in 1983 when the rentals of premises let out as far back as the Fifties were brought up to the 1980 level. This was because of the vast disparities in rents set more than 20 years ago and which had not been revised. Even with the revision, rentals at the 1980 level are still very much below the current rentals. The HDB has no further plans at the moment to review rentals for its business or industrial premises.

It would not be good for the HDB to start reducing its rentals because of poor business. If businessmen know that the HDB is prepared to reduce rentals because of poor business, they will not mind submitting high bids in order to get a shop unit and subsequently appealing for a reduction in rental because of poor business. This will make tender bids extremely high and is not beneficial to the economy. The HDB does allow businessmen, who are unable to continue paying their rentals, the option of terminating their tenancies and re-tendering for the same or new remises at a lower rental.

(b) The selling prices of HDB flats have never been pegged to conditions in the private property market. HDB selling prices are determined by factors like land cost, construction cost and, most importantly- affordability of applicants. As a result, HDB selling prices are always well below prices of comparable private flats. The HDB 3-room simplified flats sell at $412 per sq metre, ie, less than $40 per sq foot, in New Towns, and $509 per sq metre in an Inner Suburban Zone. This is a fraction of comparable flats in the private sector. It is Government's policy to keep HDB selling prices within the reach of practically all Singaporeans in order to achieve the objective of 100% home ownership by 1999.

Dr Augustine H.H. Tan (Whampoa): Mr Speaker, Sir, in view of the Minister's reply that the HDB has only reviewed shop rentals once in the last 20-25 years, what is the HDB's future policy in this regard? Will there be a periodic review of shop rentals?

Mr Teh Cheang Wan: It is likely that the HDB will have a periodic review of the policy on shop rentals but at a very much longer interval, not in the interval of two or three years. It will be a much longer interval.

Dr Augustine Tan: Sir, will it be of the same kind of interval as in the past, namely, 20-25 years?

Mr Teh Cheang Wan: Mr Speaker, Sir, I am in no position to commit future governments of having one review in 20-25 years. But I think the period will be shorter than 20-25 years.

Dr Augustine Tan: Sir, is it conceivable that it will be within the ministerial lifetime of this Minister?

Mr Teh Cheang Wan: Sir, I think the lifetime of the Minister is also unpredictable.

Dr Augustine Tan: Sir, should the Hon. Minister not make a distinction between difficulties faced by individual shop-keepers who have tendered for high rentals and the general market conditions in which many shopkeepers are finding themselves today? And if that is so, should the HDB not give special consideration to the difficulties faced by shopkeepers all over Singapore today?

Mr Teh Cheang Wan: Mr Speaker, Sir, the HDB has taken this into consideration. That is why I said earlier that the HDB has no proposal to review the rentals. As for those who feel that they are paying too high a rental which they have tendered, they have the option of terminating the tenancy and either tender for the same shop or tender for another shop.

Dr Augustine Tan: Sir, is the Hon. Minister aware that in September last year, there was a further revision already agreed upon, which is the third stage of the shop rental increase?

Mr Teh Cheang Wan: Sir, I will give the answer when we come to Question 7.

Mr Jeyaretnam: Mr Speaker, Sir, a supplementary question for the Minister on the sale of residential flats. Will the Minister be good enough to say what relationship do the construction costs bear to the selling price?

Mr Speaker: Is your supplementary question relevant to the original question?

Mr Jeyaretnam: Yes, because we are talking about "downward revision of the prices of flats". It is under (b), Mr Speaker, Sir, and the Minister was saying that it is based on three factors, construction cost, land cost and affordability. So my question arises out of that, Mr Speaker, Sir.

Mr Teh Cheang Wan: Sir, in fact, hon. Members are aware of how the prices of the HDB flats are fixed. It is based on these three factors. Construction cost is one of the factors. Land cost is another factor. But most important of all is the affordability of the Singaporeans. There is no point for the Government to build flats and fix high selling prices when Singaporeans cannot afford them. Also, Government has, in the Presidential Address, stated very clearly that for the next five years-, the HDB home ownership of Singaporeans will be increased to 80% from the present 60% of total population, and to 100% by the year 1999. So obviously the HDB's selling prices of flats have to be pegged in such a way that the whole population can become flat owners.

Mr Jeyaretnam: Mr Speaker, Sir, I am sorry. But will the Minister please answer my question? It is very simple. What relationship do the construction costs bear to the selling price? Are the construction costs lower or are they higher and, if so, by how much? Just simply answer that question.

Mr Teh Cheang Wan: Sir, the construction cost and the land cost are the two factors which constitute the cost of the flats. In the new towns, the construction cost constitutes the greater proportion of the total cost of HDB flats because land in the new town zones is cheaper. In the central area, for example, in the city, land prices are much higher and therefore the proportion of construction cost is lower.

Mr Jeyaretnam: Sir, I am sorry, the Minister still has not answered my question. Finally, will he make open for inspection the tender documents submitted by contractors for construction of the units?

Mr Teh Cheang Wan: Yes, the HDB tender document is an open document. Anybody can purchase it. Even the hon. Member can purchase it. As soon as a tender has been received, the tender result is published in the notice board of the HDB office, almost immediately after the tender has been submitted. The hon. Member can send somebody to look at the tenders submitted today which, I think, is open at about 10.30 or 11.00 am. The result will be published at 12 o'clock on the HDB notice board. So the hon. Member can get that information.