GOVERNMENT INDUSTRIAL LAND LEASES AND FACTORY RENTALS (Policy on pricing structure)

Mr Robert Chua Teck Chew asked the Minister for Trade and Industry if he will explain the Government's policy concerning the pricing structure of government industrial land leases and factory rentals and whether any measures have been taken to ensure that such pricing will not unduly erode the international competitiveness of Singapore manufacturers.

Mr Robert Chua Teck Chew (Nominated Member): Mr Speaker, Sir, Question No. 12. Let me declare my interest as a director of a company which is a lessee of Government land and factories.

The Minister for Trade and Industry (Mr S. Dhanabalan): Mr Speaker, Sir, Singapore has limited land resources compared to our neighbouring countries. We have therefore to ensure that industrial land is used efficiently by industries. JTC's land prices are therefore based on prevailing market rates. But JTC's rates are lower than the market because it recognizes that it has a developmental role to play in ensuring that land costs do not erode the competitiveness of our industries.

JTC takes into account current economic conditions, infrastructure provided, performance of the manufacturing sector and the state of the property market when reviewing annual rentals. JTC's land lease prices are determined by the costs of acquiring land. In the past, the price of industrial land was very low, hence land lease prices set by JTC were lower. Over the past few years, JTC has had to pay higher prices for acquiring new land. Lease prices have therefore increased.

To ensure that industrial land prices reflect market prices more accurately, we have implemented a programme of tendering out industrial land sites. Two parcels of industrial land at Kaki Bukit and Tuas have been tendered out for private development of fairly large industrial parks. This will reduce JTC's monopoly of industrial land development.

As far as rented factory buildings are concerned, JTC has decided to freeze rentals for 1993 because the rental market has softened. JTC's rentals are currently 10%-15% lower than market rates. Regarding new land leases, prices have been increased by about 5% to reflect the rising costs of land acquired by JTC, but this is still 9% lower than JTC's assessed market values. In addition, existing lessees of industrial land have had their rental revisions capped and the majority of leases will continue to pay at below market prices, especially those on the 5-year rental revision scheme.

The increase in rental payments must be considered in the context of the profitability and competitiveness of our manufacturing sector. Although our land rentals are higher than our neighbouring countries, they are comparable, for example, to those in the Tai Po Industrial Estate in Hong Kong. Since we do not have an advantage of cheap industrial land, we need to be competitive in other factors of production and ensure that we remain competitive on an overall basis.

The Unit Business Cost (UBC) index for manufacturing measures the total business cost per unit of real output in the manufacturing sector. In the UBC basket, rentals form only about 4%. Other major cost components are wages which form about 47% and services costs which constitute the remaining 49%.

The increase in the UBC index has moderated. It rose by 6.7% in 1990 and 4.8% in 1991. For 1992, the increase has moderated even more to 1.3%.

Our manufacturing firms continue to be internationally competitive and earn a high rate of return. According to the Survey of Current Business by the US Department of Commerce, US investments in Singapore have consistently earned one of the highest returns. For 1991, the overall rate of return for US investments in all sectors stood at 29% in Singapore, compared to 22% for Hong Kong and 19% for Taiwan. Indonesia and Malaysia registered higher returns at 49% and 31% respectively. This was largely due to the returns on petroleum investment. Excluding petroleum, Singapore's manufacturing sector has the highest rate of return at 28%, compared to around 6-16% for the ASEAN countries and the other NIEs.

Mr Chiam See Tong: In determining the pricing structure of Government industrial land leases, has the Minister taken into account the acquisition costs of these lands compared to the acquisition costs in the private sector? The Government acquires land at a low price, whereas the private sector has to purchase the land at a high price. Does the Government take this into account in determining its rental rates?

Mr Dhanabalan: Mr Speaker, Sir, I have already stated that the cost of acquisition is one of the factors. Because the cost of acquisition lately has gone up, therefore, rentals have gone up.

Mr Chiam See Tong: Can the Minister give me a percentage of what the Government and the private sector pay for land?

Mr Dhanabalan: I cannot give him an answer, Sir. It varies very much. I do not know how the private sector acquires land. They may negotiate and buy. Whereas the Government acquires land under the Land Acquisition Act. Even though we can acquire under the Act, we still have to pay a price related to the market price prevailing as of a certain date. This has gone up over the years. So if the Member wants to have a range in specific areas, I suggest that he submits a Question and the Minister in charge of land acquisition will answer.

Mr Chiam See Tong: I understand that in certain of these industrial lands, they were acquired as cheaply as 15 cents per square foot.

Mr Speaker: What is your question, Mr Chiam?

Mr Chiam See Tong: Is that true?

Mr Dhanabalan: That depends on where and when it was acquired. I am sure the lands that were acquired in the 1960s were very, very cheap. They were swamp lands and they had to be reclaimed, and infrastructure had to be put in. So if he has a specific point to make, I suggest he puts it in the form of a proper Question.