HDB RESIDENTIAL/COMMERCIAL/INDUSTRIAL PROPERTY (Lowering of rental rate)

Mr Low Thia Khiang asked the Acting Minister for National Development whether the Housing and Development Board will pass the savings from property tax reduction effective from 1st July 1994 to its tenants by lowering its current rental rate of residential, commercial and industrial property and, if not, why not.

Mr Lim Hng Kiang: Mr Speaker, Sir, the property tax reduction of 1% each year from 1994 to 1997 is meant to assist property owners to improve and upgrade their properties, and also to help absorb some of their operating costs. In the case of sold shops and flats, the lessees will enjoy this reduction.

HDB's rental flats are let out at subsidised rates. The rents have not been raised since 1979. HDB has absorbed the higher operating costs over the years and has not passed on these costs to the tenants.

The majority of HDB's rental shops and industrial properties are also let out at rents below the prevailing market rates. As such, HDB does not intend to lower its current rental rate for residential, commercial and industrial properties as a result of the 1% property tax reduction.

Mr Low Thia Khiang: Sir, I declare my interest because my company is a tenant in HDB industrial premises.

Based on the answer given by the Minister, was it the interpretation of the Acting Minister that the intention of the Finance Minister, in announcing the reduction of property tax, was to help Government reduce expenditure on subsidies to industrial premises?

Mr Lim Hng Kiang: The intention of the property tax reduction is, as I stated earlier, to help property owners, in this case, HDB, to improve and upgrade their properties and also to help them absorb some of the operating costs. In the case of HDB rental flats, the rent is kept very low. We do not see the need to reduce it by 1%. Similarly, for rental shops and industrial premises, the rents are all below market price. If any tenant feels that he is not getting a fair deal from HDB, he can give up his premises and tender for new premises.

Mr Chia Shi Teck (Nominated Member): Sir, has the valuation of HDB properties been increased over these years? If so, the 1% reduction is not enough to offset the increase in valuation.

Mr Lim Hng Kiang: HDB's shops and industrial premises are let out on a term tenancy depending on the tenants. Some choose one-year tenancy while others choose two-or three-year tenancy. At the end of the tenancy, there will be a rental revision by 10%, 20% or 30% depending on the term of tenancy. Many of these premises are let out at very, very low rates because many of them were resettlement cases. So even if we adjust by 10-30% at the end of the term tenancy, the final rates are still very far below the market rates.

Mr Low Thia Khiang: Just now, the Acting Minister mentioned that industrial and commercial premises are let out at below market price. How about tenders? The HDB puts out tenders and the tenants tender at market rates.

Mr Lim Hng Kiang: That is correct. If the tenants obtain their shops in the first instance through tender they would have paid market rates for them. As willing buyer and willing seller, they sign for one-, two- or three-year tenancy at the rate that they want.

Mr Low Thia Khiang: So for these tenants who have tendered for their shops on the open market and paying market rate, would HDB consider giving them the reduction in property tax?

Mr Lim Hng Kiang: The answer is no.

Mr Low Thia Khiang: Why not? The rationale is that because it is below market rate, HDB will not give such a rebate. But in this case it is at market rate.

Mr Lim Hng Kiang: HDB treats its properties, both rental flats and shops and industrial premises, as a cost centre overall. I am sure all individual businessmen do not allocate cost to individual units.