HOUSING AND DEVELOPMENT BOARD SHOPS (Sale to sitting tenants)

Mr Low Thia Khiang asked the Minister for National Development what is the objective of the Government in selling Housing and Development Board shops to sitting tenants and whether the policy has achieved its desired results.

Mr Matthias Yao Chih (for the Minister for National Development): Sir, the HDB launched the Sale Of Tenanted Shops Scheme in July 1992 as part of the overall retail sector plan to improve the efficiency and productivity of the retail industry. By allowing shopkeepers to own their shops, it would insulate them against future rental revisions. With less uncertainty over their operating costs, the shopkeepers will be able to further invest in and upgrade their shops to improve their operations, thereby increasing productivity.

Shopkeepers who own their shops now have a greater incentive to upgrade their shops, both internally and externally. So far, as compared to rental shops, HDB has received about 50% more requests from owners of sold shops for upgrading of their premises in the form of additions and alteration works.

The scheme has also encouraged shopkeepers to group themselves together to upgrade their commercial centres. The first two retail centres that have completed their upgrading programmes are in Yishun Neighbourhood 1 Centre and Yishun Neighbourhood 2 Centre. Shopkeepers of another seven retail centres have also approached the Retail Promotion Centre for assistance to upgrade their retail centres. A few of these centres, of which one of them is Bedok Town Centre, have commenced the upgrading of the mall.

The Sale of Tenanted Shops Scheme also provides an opportunity for shopkeepers who do not intend to continue their businesses to assign or sub-let their shops. In this way, more efficient retail operators can take over and thus contribute to the restructuring of the retail sector in HDB estates. Since the launch of the sale, there have been some 3,500 cases of assignment and sub-letting of shop tenancies. And of those already sold, only about 6% have been resold. Thus, the objective of the Sale of Tenanted Shops Scheme has been met.

Mr Low Thia Khiang (Hougang): Sir, since the objective has been achieved, why has there been a slowing down of the sale of shops?

Mr Matthias Yao Chih: Sir, in the past, the shops were valued according to the area and therefore a single valuation was applicable to many shops in the same area. This was found to be unsatisfactory by some of the tenants and they requested for HDB to make individual valuations. HDB has agreed to do so and therefore valuations of shops will be carried out individually. This takes a much longer time and therefore HDB can only process about 1,500 cases per year as compared to about 2,000 previously.

Mr Low Thia Khiang: Sir, before the scheme was implemented, did HDB anticipate that the shop prices would appreciate by 40-50%?

Mr Matthias Yao Chih: Sir, the price increases were according to market trends, and it is not possible to anticipate to a very high degree of accuracy how prices will increase over the next 3-5 years. HDB will monitor the situation consistently and constantly and provide the valuations according to what the market dictates.

Mr Low Thia Khiang: Sir, am I right in saying that the HDB did not anticipate the price increase to the present scale?

Mr Matthias Yao Chih: Sir, it is not a question of HDB having to anticipate whether shop prices will increase or drop. HDB's job in selling these shops is to provide an accurate valuation for the tenants. Earlier on, the valuation was done en bloc according to the area. This was not satisfactory. The system has been changed. Valuations are now done on individual shops and this is much more satisfactory to the tenants.

Mr Low Thia Khiang: Sir, is the Government aware that the escalating shop prices, and hence the valuations, have resulted in shopkeepers' anxiety and uncertainty, which may not be in keeping with the original objective of the sale of shops?

Mr Matthias Yao Chih: Sir, HDB officers keep in close touch with the shopkeepers who have already bought their shops as well as those who are about to buy their shops. Surely, we know about their anxieties and worries. Therefore, the financing scheme has been changed to allow the shopkeepers much easier repayments and this has been announced recently by the Minister.

Mr Low Thia Khiang: Sir, would the Senior Parliamentary Secretary consider fixing the selling prices of all the shops now? And if the shopkeepers think that the prices fixed now are too high, they should be allowed to re-evaluate the prices in future when the shops are offered for sale?

Mr Matthias Yao Chih: Sir, it does not make good business sense either for the HDB or the tenants to do so.

Mr Low Thia Khiang: Why not?

Mr Matthias Yao Chih: Because any fixing of prices goes against market practice. I am sure the shopkeepers would like the prices to reflect market rate. Their problem is not escalation of prices. Their problem is whether the mortgage payments are financed in such a way that they can find it easy to pay.

Mr Low Thia Khiang: Sir, does the Senior Parliamentary Secretary agree that the problem is the affordability of buying the shop and the servicing of the instalment payments? If the shop price eventually goes up too high, it would be beyond their means of servicing the repayments.

Mr Matthias Yao Chih: Sir, I do not agree that the problem is affordability. The problem is one of cash flow.

Mr Low Thia Khiang: Sir, does the Senior Parliamentary Secretary agree that high HDB shop prices may result in shopkeepers being priced out of the HDB neighbourhood which is providing service to the residents? Also, the shopkeepers might pass on the higher cost to consumers if the prices of shops keep on escalating, thus leading to a rise in business cost.

Mr Matthias Yao Chih: Sir, 96% of the shops which were offered for sale were taken up. Only 4% were not taken up for various reasons. In any case, we have not detected any escalation of prices. CASE has not detected an escalation of prices in the sold shops.

Mr Low Thia Khiang: Sir, what is the rationale for letting CCCs to decide which shops should be sold first?

Mr Matthias Yao Chih: Sir, the CCC advisers do not decide. The CCC advisers only recommend.

Mr Low Thia Khiang: Sir, I wonder whether the Government is favouring some shopkeepers by selling the shops to them first and thus allowing them to make a huge profit when the valuations of the shops go up.

Mr Matthias Yao Chih: Sir, the sale of shops is carried out island wide. Different precincts and different constituencies are chosen for a good spread of the shops. No shopkeeper is allowed to profit from his shop because of favouritism by the Government.

Mr Low Thia Khiang: Sir, what are the criteria for the selection of shops for sale?

Mr Matthias Yao Chih: After selling the shops, it depends on whether the productivity of that whole precinct, in terms of the retail sector, will be improved.

Mr Low Thia Khiang: How does the HDB judge and anticipate whether after the sale of shops in a certain precinct, the productivity will be increased?

Mr Matthias Yao Chih: By close consultation with the merchants' and shopkeepers' associations, with the CCCs, RCs and grassroots leaders.

Mr Low Thia Khiang: Does the HDB stipulate what sort of improvements or productivity level should be achieved after the sale of shops?

Mr Matthias Yao Chih: I did not get the question. Is it the measure of productivity?

Mr Low Thia Khiang: The objective is to make sure that the shopkeepers increase their productivity after the sale of shops, and therefore HDB decides. The question is: how does the HDB decide on that? What criteria have been used to decide whether to sell a certain precinct of shops?

Mr Matthias Yao Chih: Sir, as I told the House just now, shopkeepers of certain precincts or shopping areas have gotten together to propose ways of improving pedestrian traffic, attractiveness of the mall, etc. These proposals are carefully evaluated. After selling the shops to the shopkeepers, they themselves have carried out improvements to their own shops and to the surrounding areas. These are good indications that there will be higher turnover, higher productivity, higher consumer demand and these are factors which will be taken into consideration.

Mr Speaker: Mr Low, I will allow you one last supplementary question because we have a long list of Questions.

Mr Low Thia Khiang: Yes, Sir. Is the Senior Parliamentary Secretary saying that the HDB will only consider selling the shops if there is a proposal by shopkeepers of a precinct to the HDB?

Mr Matthias Yao Chih: No. This is just one of the factors.