ESTIMATES OF EXPENDITURE OF SINGAPORE FOR THE FINANCIAL YEAR 1ST APRIL, 1999 TO 31ST MARCH, 2000

Order read for consideration in Committee of Supply [2nd Allotted Day].

[Mr Speaker in the Chair]

Head N (cont.) -

Resumption of Debate on Question [10th March, 1999],

"That the total sum to be allocated for Head N of the Main Estimates be reduced by $100." - [Mr Shriniwas Rai].

Question again proposed.

The Chairman: Head N - Ministry of Finance. Amendment No. (1). Mr Leong and Mr Chng are not here. Mr Chuang.

Mr Chuang Shaw Peng (Nominated Member): Sir, I would like to request permission to circulate a table. [Copies of Table distributed to hon. Members].

All along, the Singapore Government has subscribed to the policy of having an open economy. It believes that a free and fair market will derive the most benefits for the nation in the long run. The recent incident whereby TAS asked SingTel to show cause why their latest pricing was not predatory and the subsequent heated debate in this House affirmed the belief that the Government has always wanted to ensure that the playing field is level, and free and fair market is maintained. At the administrative level, this belief has been translated into the Government procurement policy and implemented by the Finance Ministry all these years and, that is, in any public open tender, the bids must be competitive and the award goes to the lowest bid with substantial compliance with the specifications.

For those who have studied economics, this procurement policy can be said to meet the requirements for optimum consumer and producer benefits based on the assumptions that the following conditions are met:

(1) There must be a large number of competitors;

(2) The competitors are about the same size;

(3) The competitors are provided with the same information;

(4) The competitors will have the same product quality; and

(5) Free entry and free exit for all competitors.

If one or more of these conditions are not satisfied, the outcome may not be optimum. The interference by TAS was actually trying to make sure that all these conditions are met. However, in other segments of the economy, particularly in the construction industry where most of the development funds will be spent, I observe that the players repeatedly deviate or attempt to deviate from these conditions for their own benefit.

Sir, I would like to declare my interest here. One typical example of violating free entry conditions is the process of pre-qualification where unreasonable conditions are set to reduce the number of competitors. Another example would be the predatory pricing policy practised by almost all foreign contractors. The table distributed earlier shows that six local construction companies with a turnover of $6.6 billion reported a profit of 2.8% and paid a tax of 1%, that is, $46 million. But seven Japanese companies with a turnover of $6.1 billion, which is almost the same as the local companies, reported a loss of $201 million and paid a tax of 0.4%, that is, $24 million. What is worse is that three Korean companies with a turnover of $4.6 billion reported a loss of $300 million and paid a tax of $14,869. One Chinese company and one French company also reported losses.

Sir, anyone who reads this report, which is extracted from our ROC, will straightaway recognise that all these firms are either poorly managed, or they carry out dumping, or they are practising transfer pricing, or doing a combination of the three.

I would like to ask the Finance Minister whether it is his policy to allow this to happen. I wish to highlight to this House that dumping and transfer pricing are predatory in nature. It helps these firms to increase their ability to grab projects at all times, and thereby crowding out the local firms who honestly price the projects and pay their taxes.

I would also like to raise the question why these foreign firms could sustain huge losses year after year. Do they still meet our CIDB's registration requirement? And if they are branch offices, is their head office still a viable entity? Sir, let me look at this issue from another angle. I would like to bring up a point made by the Finance Minister two days ago. In his reply to Mr Lim Swee Say, he mentioned that at our stage of development, he would like to have more aesthetically designed buildings and these buildings should also be built for easy maintenance. He has in fact brought home the point that his Ministry believes in paying for good value, and not the cheapest. Hence, again, I agree with Mr Lim that we should save but we should go further by stretching our dollar to the fullest from the present and future benefits. And that is to say, in financial terms, the price we are paying should be the net present value of present and future benefits. Aesthetics, as mentioned by the Minister, can be classified as present benefit and ease of maintenance is of course our future benefit.

Sir, I beg to urge that the Finance Ministry build into the procurement system more measures to incorporate some other benefits and these benefits can assist SMEs to build capability, just like our previous policy on CONQUAS; to create jobs; to acquire and retain knowledge; to build community bonding and to be environmentally friendly.

Many members of this House have brought up this issue in the first two days. Here, I am suggesting a mechanism where all wishes can be fulfilled and yet we still get the most benefit of an open and fair market. By not sticking to the lowest price method, we can adopt the bidding model based on performance specifications or the design-and-build specifications to meet the WTO requirements and to get the most benefit. 12.45 pm

The Chairman: Order. Mr Chuang, could you wind up because we need to allow time for the Minister to reply to about nine Members? If you use up all the time, I am afraid there will be no more time for reply.

Mr Chuang Shaw Peng: Yes, Sir. I hope the Minister can see that there is a need to change our mindset and again I want to ask, in line with the call by Mr Lim Swee Say, that we change the mindset of our people. Dr Tan Cheng Bock has called on the Government to care for the people, in the light of our foreign talent policy. I would also like to echo his call by asking the Government to care for the SMEs in the light of unfair competition from overseas. With Government accounting for more than 50 cents for each dollar spent in Singapore, the Government can show that it cares by changing its mindset, that is, it should be left to market forces.

Dr Richard Hu Tsu Tau: Sir, I will respond to questions raised yesterday, beginning with Mr Lim Swee Say. Mr Lim has asked whether Government could consider granting pioneer status or special investment allowances to companies which are proceeding to move into the knowledge-based industries, as this is the future we envisage for our country. I can assure Mr Lim that the Government recognises the need to transform Singapore into a knowledge-based economy so that we have been constantly revising our incentives to try to meet new requirements. For example, in the 1998 Budget, I have already announced an Approved Cyber Trading incentive scheme to encourage companies to take advantage of trading over the Internet and several other existing tax incentives, such as the pioneer status, the Development Expansion incentive and double tax deductions for research and development, already cater to companies engaged in high-value activities in high technology projects which should also cover the knowledge-based type industries. Indicators such as value-added per worker, the profile of the workers and the level of research and development spending are already currently being used to evaluate the awards of these incentives.

However, I should point out that to achieve what we aim to do, the tax incentives granted must be focused. Otherwise, we will be giving away money without any specific objective in mind. For example, if we simply give tax incentives for whichever company claims to be investing in manpower redevelopment, the dispensation of such tax advantages would be too broad to have any direct focus or desired outcome. However, agencies such as the Economic Development Board can leverage on the granting of tax incentives to get companies to upgrade their manpower capabilities and my Ministry is also always open to consider specific proposals to incentivise manpower development and upgrading and I would ask Mr Lim to let us have his specific views which we will consider. I can assure him that they will be well-received. But we need to know specifically what is needed, and in which directions should we give these incentives because it is obviously not possible to try and give broad incentives covering all sectors because that will be far too costly. As Mr Lim himself has said, there are already referral schemes by Government to facilitate and fund continuous learning, but more can be done if this is necessary. The Manpower 21 Committee is also looking into ways to promote lifelong learning and upgrading in our workforce.

Mr Inderjit Singh has raised the issue of helping our local traders grow by providing trade financing. He is quite right in saying that small traders form an important part of our economy, and, therefore we should try and help them whenever we can, and many of these had been hit by the present downturn. However, he has suggested that Government should provide financing along the lines of the Local Enterprise Finance Scheme (LEFS) for trading activities. Alternatively, Government should arrange for local banks or international banks to provide low-cost loans for such purposes.

I would like to say that the commercial market for trade financing in Singapore is already very well-developed and efficient, since trading has been a long established part of our economy and our entire banking infrastructure is geared up to service this sector. As such, I do not see there is any compelling reason why Government should intervene and extend the LEFS scheme into the trading sector. But if he can put up a specific proposal, we would welcome it.

Mr Inderjit Singh has also indicated that Hong Kong provides tax exemption for third country trade done outside the economy by a company in Hong Kong. I should point out that Hong Kong has a different tax rule from Singapore. Such income will be regarded as a foreign source income and therefore not taxed in Hong Kong. In the case of Singapore, such income would be taxed if it is carried out by a company in Singapore as this would be regarded as Singapore source income. However, to promote offshore trading, we have introduced tax incentive schemes such as Approved Oil Traders and Approved International Traders Schemes. Under these schemes, income from offshore trades carried out by approved traders are taxed at a concessionary rate of 10%. These schemes are open to all companies, whether local or foreign, as long as they meet the approval criteria.

Mr Shriniwas Rai has asked for a review of the tax on the sale of property. Tax rules were changed in May 1996 as a measure to dampen property speculation. The key change was to impose capital gains tax on property sold within three years. At this point of time, we do not think it is necessary to remove this restriction because genuine home buyers should not be disturbed by this requirement. They ought not to be selling their property within three years. In any case, the tax is on a sliding scale. What we are concerned about is, if this measure is lifted now, and the property sector recovers, we will be faced with the same problem again and will have to re-introduce a new set of regulations. For the time being, I would prefer to leave it be.

Mrs Lim Hwee Hua has raised concern over the administration of GST, particularly in the cashflow problems faced by the smaller companies and she has asked that the Government could perhaps streamline these procedures to help them. I would like to say that the Government has already several schemes to help ease the cashflow burden of these businesses, including the SMEs, and these include the Major Exporters Scheme, the Bonded Warehouse Scheme and companies with MES status could have GST suspended on imports. In my FY99 Budget speech, I also announced two new schemes to help contract manufacturers and traders who are operating as logistics companies. I do not want to spend any more time on this issue because my time is limited. But if Mrs Lim is interested, I can provide her with more details.

Mr Sin Boon Ann has raised questions on whether we should not be amending the Companies Act as a comprehensive overhaul of the Companies Act is long overdue. I agree with Mr Sin that the Companies Act has to be amended regularly to ensure that its ambit does not fall behind comparable jurisdictions elsewhere. In particular, it should be updated to ensure the provisions do not inhibit or place obstacles in the path of new economic activities. This is especially important at the present time when we are trying to restructure rapidly to a knowledge economy.

Mr Sin has also suggested that we scrutinize changes made in other countries such as Australia. We will indeed be looking at all the new schemes which other jurisdictions have proposed to help smaller companies and we will incorporate whatever we consider appropriate. Instead of embarking on a comprehensive review of the Act, it is more prudent and practical to progress in stages to improve the Act and to introduce changes which are needed urgently, rather than try to do a comprehensive review all at once as this will take quite a long time. Otherwise, the total overhaul of the Act at this time will hold back other changes unnecessarily.

Mr Inderjit Singh also raised questions with regard to changes in our tax laws. He said that our current tax laws are too restrictive and inflexible. Mr Heng Chiang Meng, in his Budget debate speech, also called for a full review of our tax system to ensure that it is totally business-friendly and supportive of the economy's broad goals. I can understand why Mr Inderjit Singh and Mr Heng are being deliberately provocative in making these appeals. Clearly, in these difficult times, they want as much help as possible for our companies, which I think is very laudable. But I hope that they will also understand that the Ministry of Finance, in responding to the needs of businesses, has also to cater to the needs of a wider constituency which is to safeguard the Government's fiscal position.

To help businesses, we can cut taxes, increase rebates and relax our regulations. But there is a point beyond which we cannot go without fore-going too much revenue and allow too much tax leakage, leading to permanent budget deficits. Striking the correct balance is not an easy process but I believe that up to now, we have not done too bad a job.

It is also important that we look at our tax system in totality when making comparisons with tax systems elsewhere. One has to look at the overall effective tax burden on businesses, determine the competitiveness of our tax regime, rather than comparing a particular feature in a tax system with another. Compared to many countries, we have a simple tax system which is not onerous in compliance. Our income tax rates are low. We do not tax foreign source income until it is remitted. We do not have a capital gains tax such as in countries like the United Kingdom and the United States and we allow full imputation for corporate tax. This has made our effective corporate tax burden low compared to other countries.

I want to stress that the Ministry of Finance and the IRAS review our tax structure regularly with the changing business environment and aims to achieve a tax regime that is conducive and friendly to business. This is our main aim and if Members have constructive ideas, these will be always welcome subject to the caveats I have stated earlier. Any changes we make are not done in isolation but always in consultation with our economic agencies and frequently with feedback from the private sector.

Mr Singh also puts forward seven specific proposals in great detail. I am afraid that I do not have time to deal with these in full and I suggest that I give him a written reply so that he at least gets a proper response.

Mr Shriniwas Rai (Nominated Member): Sir, I think the House must be grateful to the Minister for giving very comprehensive replies. He has offered a written response to Mr Inderjit Singh and I hope that he would also give Mr Chuang a written reply as well. With that, Sir, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The sum of $761,329,600 for Head N ordered to stand part of the Main Estimates.

The sum of $764,045,500 for Head N ordered to stand part of the Development Estimates.

Head U - 1.00 pm

The Chairman: Head U, Ministry of National Development. Amendment No. (1), Mr Lew Syn Pau.

Mr Lew Syn Pau (Kreta Ayer-Tanglin): Sir, I beg to move,

That the total sum to be allocated for Head U of the Main Estimates be reduced by $100.

Sir, this time last year, when I spoke on the state of the property market, the property price index of private residential properties had only dropped about 16% from its peak in the second quarter of 1996. Prices were then back to the level of the first quarter of 1995. Since then, with the full impact of the regional economic crisis felt, it is estimated that by the end of last year, prices have corrected by about 40% from the peak, and this has brought prices back to the 1993 levels.

This is a matter of grave concern to many. While deflating property values can help improve Singapore's international competitive position, drastic asset price correction of this scale can trigger negative multiplier effects on consumption and investment. It also imposes an additional strain on the banking sector as many credit lines are secured by property assets. Calls for top ups by banks and finance companies not met can lead to reduction in credit lines, defaulting loans, corporate failures and personal bankruptcies. The consequences on the economy can be disastrous, as business failures can lead to mass unemployment and social unrest, as we have seen in Indonesia.

As I have said before, in my view, it is the duty of Government to do its utmost to stabilise the property market. Despite the actions taken by the Government so far, such as deferring Government land sales programmes, extending the project completion period for Government land sale sites to eight years and so on, according to the property consultants, the prices are still falling against a backdrop of fewer transactions. This problem is obviously a very complex one caused by the regional economic crisis, poor sentiments, tight liquidity, over supply of space and, of course, high land values. It is just a problem of mismatch between the demand and supply.

According to property consultants, on the supply side, the effective potential supply of residential property is about 30,000 units. The average take up rate, however, is estimated to be only 6,000 units per annum. This means it will take five years, ie, until the year 2003, for the current potential supply of 30,000 units to be absorbed. I would like to ask the Minister whether he agrees with these estimates put up by the property consultants and, if so, what are the implications for the future sale of residential land. Does it mean that we should defer land sales for a few more years beyond 1999?

On the demand side, consultants have also estimated that by the year 2000, effective total housing stock comprising both public and private units will be 875,000 units, exceeding the housing needs of 797,000 units by 9%. So there will be an excess stock of 80,000 units. Here again, I would like to ask the Minister whether he agrees with these figures and, if so, what are the implications for housing policy. Would the Ministry review the total housing supply in a comprehensive manner, taking into account the demographics of Singapore and let us know what is the long-term sustainable supply that should be planned for?

Finally, I would like to ask the Minister whether he thinks all the measures currently in place are enough to stabilise the property market, and, if not, what new measures should be introduced. Would the Government consider going into the market to buy back the surplus land at current market prices and return them to the State land bank, or perhaps put them into other alternative uses?

The other suggestion I made at the debate on the Budget Statement but which was not given a specific response by the Minister for Finance is the possible waiver of stamp duty paid by the purchaser until further notice. Would the Minister look into this proposal also?

Dr Wan Soon Bee (West Coast): Sir, I listened with great interest what my GPC Chairman has said. I totally disagree with him.

Between 1992 and 1996, property prices increased by well over 300%. This had brought about a lot of undesirable effects. Owning a private residential property for most Singaporeans, became an impossible dream. Our business costs also escalated and we became uncompetitive. Our efforts to attract foreign talents to Singapore were also hampered, because the cost of housing had become a very serious stumbling block. After the introduction of the anti-speculation measures in May 1996, coupled with the severe regional economic crisis, prices had declined. But the prices are still relatively high compared to other countries.

The property market has a tremendous impact on the economic performance of the country. It has to be properly managed. Therefore, I would like to urge the Government to closely monitor the sale of land. As we know, the supply of property is inelastic, given the gestation period necessary to bring the supply to the market. I am concerned that if the freeze in Government land sale is continued for too long, it might result in a shortfall when demand picks up. This can lead to a repeat of the boom and bust cycle that is economically unproductive. I therefore urge the Government not to delay the sale of land for too long, in order to maintain greater stability in the property market.

Mr Shriniwas Rai: Sir, owning a private property is a very desirable ambition, and I think we should encourage it. The only caveat is that in this country, the property market is so volatile. If we take 1981 as a base, a terrace house in Serangoon/Hougang used to cost $40,000. Ten years later in 1991, it was $400,000, 10 times. Nowhere in the world could we have such a high appreciation.

Sir, I have here this morning's Business Times. Let me quote Mr Greenspan. He said:

"Based on a medium period of owning a home for nine years, that each home sale since 1995 has averaged roughly US$35,000." Here, in the height of the property speculation, the next day you can make $35,000. This is dangerous and we should check it.

I have some proposals for the Minister. There has been some success with Executive Condominiums. The Government, at the moment, is the biggest owner of land, and I am concerned especially with 99-year leasehold properties. The cost of construction does not rise and fall very much. It is almost at a very level position. What the Government can help to make the dream become a reality is this - sell the land or possibly the HDB could join forces with the private developers, and then at least you have some control over the market forces. I know the Minister will say that we should not interfere with the market sentiment. But this is one suggestion.

Secondly, there is this perception in some Singaporeans that we must buy a private home within 5-10 years. I think this perception has to change with the economic reality. I must especially applaud the Ministry, and the HDB in particular, for building very good housing. I have been to other parts of the world, both developed and developing, but I think our housing policy has been a resounding success. Can we improve on it? That is the question. And if the HDB can carve out some of its older 5-room and HUDC blocks, build some swimming pools and other facilities, upgrade them into a real condominium, I think many Singaporeans will then stick with these flats for a few years and then move on.

My plea to the Minister, and in fairness to the other Members, is this. Watch the market and then have a long-term planning. Do not act on short-term measures. Take a long-term planning. After all, land is limited in Singapore. And I share the sentiments of what Dr Wan Soon Bee has said earlier. The property prices should not be too volatile.

Dr Lee Tsao Yuan (Nominated Member): Sir, in land scarce Singapore, land will always be costly if sustained economic growth continues to generate a high demand for land. That is a fact that we have to live with. Having said that, it is important to examine whether there are other factors which contribute to the high cost of land and, if so, what can be done about it. Mr Lew Syn Pau and Dr Wan Soon Bee spoke about land sales and disagreed. What I would like to speak about would be policy changes on the demand side.

We all know that there was a property bubble which started from about the beginning of 1992 when there was a discernible escalation in property prices. From the first quarter of 1992 to the second quarter of 1996, when the anti-speculation measures were imposed, the residential property price index increased by about 160%. What this meant was that a property which costs about $1 million in 1992 would have cost $2.6 million, some four years later. On hindsight, the May 1996 anti-speculation measures, by curbing the sky-rocketing of property prices, also helped prevent an even steeper drop during the financial crisis which began to seriously affect Singapore in early 1998. That same piece of property which cost $2.6 million in 1996 would have cost $1.4 million at the end of 1998. And I think that what three of the MPs before me have been saying is that this kind of up and down movement in property prices is undesirable.

One reason for the property bubble was the expectational spiral. When prices started rising, the expectation of even higher prices in future spurred demand, which in turn caused prices to increase in an ever increasing upward spiral. During that period, property was seen as a one way street to increasing wealth, much faster than earning a salary. However, the financial crisis has taught us otherwise, and I hope that we learn this very important lesson that investment in property has its risks and property prices can fall as well as rise.

However, expectation was not the only cause. Changes in Government policy which were implemented to achieve certain specific objectives, such as home ownership, contributed to the increase in demand and hence the property price escalation. For example, the price of a 4-room HDB resale flat rose from about $96,000 in 1992 to over $260,000 in 1996. The

1996 Cost Review Committee identified two factors which contributed to this price escalation: (1) the relaxation of mortgage financing rules in 1993, which allowed for loan financing to be granted up to 80% of current valuation instead of the 1984 posted prices; and (2) the revised resale procedures to ease cash upfront problems which occurred in 1995. 1.15 pm

In future, it would be advisable that account be taken of the possible impact on property prices before policy changes are made. The property price escalation has another undesirable effect. There was a time when property development was the best business in town. Every large company in Singapore was considering property development even though its core business was entirely unrelated. Although each company should decide what is best for its bottom line, I question whether, from the national point of view, this is a desirable allocation of business resources. The way to reduce this is not to interfere at the company level but to ensure that the macro incentives are conducive to a desirable pattern of resource allocation.

In conclusion, we need to do our best to ensure that the property bubble of the scale that was experienced in the past does not occur again and, in particular, that policy changes do not inadvertently contribute to the development of the bubble.

Mr Inderjit Singh (Ang Mo Kio): Sir, we have been hearing many calls from many Members of this House and also from the public to ask the Minister to help the ailing property market. While I have nothing against doing things to strengthen the fundamentals to ensure a solid base for the property market, I cannot agree to any attempt to artificially prop up the property market or to open the market to speculation as we had experienced in the past, particularly from 1994 to 1996. I feel that the root cause of the cost competitiveness of Singapore and the high cost of living here is the artificially high prices of property, particularly the private property, both industrial and residential. Companies pay high prices for land rentals and in buying buildings which add to their cost. Similarly, retail and commercial users who have to pay high rental prices also see a much higher cost. Ultimately, the high cost is passed on to the consumers or, in the case of exports, the products cannot compete with products produced elsewhere, resulting in either lower margins or losses. This then leads to companies closing down or scaling down to relocate to cheaper areas.

Similarly, the people, Singaporeans in general, who have to pay high prices for their private properties or residential properties, will demand high wages so that they can pay for their mortgages. Sir, this is a vicious circle which originates from the high cost of owning properties in Singapore.

While the property prices have come down in Singapore in the last couple of years, the prices here are still high compared to many countries around the world. In fact, our neighbouring countries have seen a similar drop in prices by bigger percentages than what we have seen. Furthermore, I feel that only a small cross section of our population has been hurt, particularly those who bought their private properties from 1994 to 1996, while we have a bigger potential population who may be able to purchase properties if the prices are lower.

So I have a few suggestions. First of all, I would like to renew my call to the Government to decide on a long term land sales policy for private property development for, say, 10 years at a time, and do not change the policy irregardless of what the state of the private property market is. In this way, we can ensure certainty and we avoid jerking the market around as we have done in the past few years. So I hope we will continue with the land sales at the end of this year when the time for announcement is due.

Secondly, the Government basically sets the stage for private property market by setting benchmark prices for land sale tenders. Could the Ministry look into how the mechanisms can be changed to allow true market forces to rule?

Another way that the private property market gets propped up is by the prices the Ministry sets for new HDB flats. The current prices for new flats are too high with a very small gap against resale HDB flats and also against private property market. Sir, while the quantum paid for new flats is still lower, considering the renovation and furnishing costs of resale HDB flats and private properties that are already in place when a person buys a property, I feel that it is about time that the Government reviewed HDB prices for new flats, which should be reduced.

Fourthly, there has been a lot of talk about long term prices of industrial land and to set the mechanism that is not internally based but based on external competitiveness. I would like to ask the Minister to clarify what is the mechanism that we have put in place so that in the long term we can ensure that our property prices remain competitive.

Mr R. Sinnakaruppan (Kreta Ayer-Tanglin): Sir, every year the Government decides on land sales based on its assessment of the supply and demand for that particular year. With the downturn in the property market, the land sales announcement has generated a lot of interest, especially those associated with the property market. I believe this year many property developers are very relieved by the delay of the land sales. By the same token, there are a lot of Singaporeans, particularly younger Singaporeans, like what Dr Wan Soon Bee pointed out, who are thinking that although the prices have come down, they are still relatively high. I join Dr Wan in appealing to the Government not to delay the land sales for too long. In fact, in assessing how much land to release each year must perhaps be a very fine art of judgment of market conditions for the Ministry.

At the moment, the process in which it is being done is not very clear and transparent. Perhaps, I would like to ask the Minister how this process is done every year. Also, there are certain problems in this assessment in so far as the public is concerned, for example, how the Ministry determines whether a particular unit is occupied in assessing the total supply and demand. There has been a lot of controversy and much debate about this in the media. I would like the Minister to clarify this matter.

Secondly, we find that very often it is the property developers who come out to the media to say various things and put some pressure on the Government not to release land for development. In this regard, I would like to ask the Minister whether it is feasible to form a Land Sales Review Committee which could comprise not just representatives from the property sector, but also with sufficient representation from consumers through grassroots organisations and perhaps the NTUC. Such a Committee can function similar to the National Wage Council for determining annual wages. In the same way, this Committee can recommend to the Government how much land has to be released on a yearly basis.

Mr Lew Syn Pau: Although I believe in a free market, especially with regard to prices of private properties, I also believe that the Government has a certain responsibility to regulate and ensure that the market operates smoothly and efficiently. A market is only perfect if every player has access to perfect information. Recent events highlighted in the newspapers on the confusion arising from the interchangeable use of the two terms - "built in" and "built up" - is an example of imperfect information which may lead to market failure. Some developers and marketing agents have compounded the problem by freely interchanging the use of the two terms. The Government has been thus far silent on the matter.

I would like to ask the Minister whether the Ministry intends to standardise the use of these two terms so as to remove all ambiguities from their use in market brochures.

The other issue which I would like to raise is with regard to the legal liabilities of purchasers when they default at different stages of the legal completion process. Here again, there seems to be some differences in the understanding or interpretation of the legal provisions governing property transactions. I think the Government should, through public education or otherwise, inform all prospective purchasers about their legal obligations. The amount of money involved in property transactions is very high and buyers should know what they are committing themselves to before they enter any transaction.

Mr Simon S C Tay (Nominated Member): Sir, I think I must be the first speaker today on land that does not talk about sales or price but about use and ownership.

In calling for this cut to enhance public consultation on land use, perhaps some context may be useful. First, as publicly noted, Singapore's population is increasing. We are close to four million now. This is earlier than projected. We are reaching our year X scenario. With this greater population of both Singaporeans and foreigners, there are even more demands on Singapore's land space. There are different wishes and priorities and there is a need for balance. The aim, moreover, is not just to squeeze everyone in in as tight a space as possible, to make do, anyhow. Rather, our aim is to build a world class city of many amenities, physical and mental, with a good environment, to make this our best home, both physically and psychically. In this sense, ownership, familiarity of surroundings, conservation, and a good environment, are all key attributes of land use.

The context of today is also that a current review of the master plan is on-going. In this, the main tool is what we call the Development Plan Guidelines (DPG). These are detailed specifications on land use. Often, it has been said that these are effective rather than the use of environmental impact assessments. There are some existing forms for consultation on land use today. Elaborate models are sometimes developed by the Ministry or its agencies, open to the public for discussion. But, Sir, events in the last year have been of concern.

The first has been that this House has made some changes in property rights. I can think of two issues which have detained this House. First, the Strata Titles Act allowing for private redevelopment and the second, HDB powers to acquire a property while upgrading.

The second change has been public acquisition for private redevelopment and use. And there is an on-going controversy over the Dawson Road properties.

The third is that there has been use of nature reserves for other uses. Here, there was some use of nature reserves for water storage tanks. And second, a decision not to follow through on some aspects of the Green Plan that the Government adopted in the early 1990s.

Sir, I am not arguing that all these changes are wrong. In this House and in the media, I have expressed my views on these and on other matters. I will not repeat my points. But I think that in sum, we are pointing to a more general need to enhance public consultation. This is especially when Government changes the law or policy or goes against its original statement, such as the Green Plan, or changes the use, which has already been identified under the land use plan, such as the use of nature reserves for other purposes. The Government, of course, may have its reasons for these changes. But I ask the Minister to consider that people too have concerns and perspectives and they have their interests arising from what Government has already said and planned. Thus, when changes are made, I will encourage the Minister and his agencies to engage in a full, rational discussion and consultation to explain and also to listen. I believe that where the Government is rational and has good reasons, Singaporeans can be convinced. Some may not, but others will understand and respect the Government's views. Trust, transparency and accountability are not only terms we should use for financial matters, but also about land use.

In some countries, citizens end up using the court legal system to challenge the Government for breach of what they think of as the public trust in the use of land. This is not good. Even though I am a lawyer, I would not encourage such litigious practice. But just as the Government has a land bank, the Government has a bank of trust. If it is an urgent matter, it can draw on the bank of trust and use it without consultation. But where land use is important but not urgent, I would encourage the Minister to consider a full public consultation on land use where land policy is changed.

The Minister for National Development (Mr Lim Hng Kiang): Sir, I would like to take these proceedings with the time constraint in mind. In case Members do not realise, we are all given four minutes per cut. So this segment should have taken 32 minutes, but since Members have taken 30 minutes, you will get a 2-minute response from the Minister. You have all made very eloquent speeches. Mr Simon Tay has asked the Government to listen and explain. Since I have two minutes, it shall be largely listening, and not very much explanation.

Anyway, I will just take the key points. First, the correction in the property market has progressed reasonably well. These adjustments in the property values and rentals, like the reduction in wages, have ensured that we remain competitive, vis-a-vis the other international cities. The correction in the property market has been achieved without posing any systemic risk to the financial sector. This is very important because since we introduced the anti-speculation measures in May 1996, our banks have taken prudent steps to reduce their exposure to the property market. The banks are also well capitalised with capital adequacy ratios well above the BIS' guidelines. They have also made prudent provisions for their non-performing loans. Therefore, our banks are in a strong position to meet the uncertainties ahead.

1.30 pm

Since we have this firewall between the property market and the financial sector, we can expect to let the property market continue its current consolidation process. The Government will therefore let the existing property market measures run the full course and there is no need to introduce any new measures at this point in time.

Looking ahead, I want to stress that we will continue to stick to our long-term policies on the property market. There are three key elements: First, we want to maintain prudential measures in the property market. Second, we want to release sufficient land to meet the medium-term demand through the Government land sales programme. And, third, we want to encourage greater transparency by providing timely and comprehensive real estate information.

So let me take the various suggestions of the MPs in these areas.

On prudential measures, the demand is there, especially from the HDB upgraders. The core measures like the 80% financing limit on mortgage loans will therefore remain. I agree with the views of many of the Members that we do not want to encourage another speculative bubble and therefore we should not allow easy credit to fill a new speculative boom.

On the Government land sales programme, I have heard both views, for and against the resumption of the sale. Our policy remains the same. First, our property prices must remain affordable and competitive in order to retain and attract talent. Therefore, the Government has set aside sufficient land to meet the housing aspirations of Singaporeans and to ensure competitive housing for foreign talent. And we will release these lands at a steady pace to meet the demand over the longer term. The Government has suspended land sales in 1998 and 1999 in view of the regional economic crisis. We will resume land sales as soon as practicable in tandem with the medium-term demand. As I have announced earlier, the land sales decision for year 2000 would be made in September this year. We will review the demand and supply situation.

In response to Mr Sinnakaruppan, let me assure him that the land sales process is fairly transparent and logical. We take into account what is in the current stock, what is the projected demand and the supply in the pipeline. And we will announce this in September for the next year within a multi-tier framework. So it is fairly transparent and rational.

Mr Inderjit Singh suggested that the Government set a 10-year land sales programme and do not deviate from it in good times or bad. This is too inflexible, because conditions affecting demand and supply of properties can change substantially over such a long period. I think the last 10 years is a case in point. It would not have been possible for the Government to totally ignore the speculative froth in 1995 and 1996 or the regional economic crisis in 1997 and 1998. Therefore, it is prudent that the Government continue with its current practice of reviewing the land sales programme every year, but within the medium-term framework.

The third element of the Government's property policies is to make sure the information flow is timely and comprehensive and to encourage market transparency. We do so by having the URA to release comprehensive and timely data. This is very important to make sure that the market works efficiently, and the URA will continue to improve the quality and timeliness of these data.

Mr Sinnakaruppan asked how the occupancy rates are computed. This the URA does with a standard survey method. For commercial and industrial properties, URA ascertains the occupancy through quarterly surveys of the property owners and their agents, as well as site visits. For private residential properties, the URA infers the occupancy from the consumption levels of water and electricity on Power Supply's records, ie, if the house does not record a certain level of water or electricity, we deem the house to be not occupied. URA also carries out field visits to confirm whether properties are actually occupied for doubtful cases.

Mr Rai asked for HDB to join with private developers. I think HDB is quite tied up, with its hands full, with its own programme, without having to dabble in the private property market. He asked for HDB flats to be privatised. I have answered before that this is not something that we rule out, but it is not something in the foreseeable future.

Dr Lee Tsao Yuan asked us to make sure Government policies do not contribute to the property volatility. I think we will be more careful in future Government policies. We try to be as wise as possible.

I will refer to the pricing of new HDB flats later on when there is a segment on HDB flat price.

Mr Inderjit Singh asked how industrial land is priced. I will refer him to MTI. Industrial land pricing policy is set by MTI.

Mr Sinnakaruppan asked for a land sales review committee, much like the NWC. I think we have enough processes of dialogues with the various players. We can look at whether such a review committee is workable. I can tell you that it is not very difficult. We just set X number of units to be sold every year and we try not to deviate from that number, unless there is a major change in the environment.

Mr Lew Syn Pau asked the Government to intervene to standardise the use of terms and also stipulate the legal liabilities of buyers. I think the two instances he referred to are presently in court, because there are differences in interpretation of the sales and purchase agreement and also there is no standard definition of "built-in" area or "built-up" area. I think we will leave it to the court to decide on these two issues first and, if necessary, my Ministry will talk to the various participants to resolve this issue. But to intervene now when there is a court case, I think, would not be wise.

Mr Simon Tay asked for more consultation so as not to diminish the reservoir of goodwill. I agree with him. I think we would try to present our plans. We do that regularly. For example, our Development Guide Plans plus any changes in land use, we do it in a very systematic way. But in specific instances, whether it is water tank in the nature reserves, I think such issues ought to be explained more, so that we can convince the public that it is a necessary decision.

Mrs Lim Hwee Hua (Marine Parade): Sir, let me begin by stating that this is not a critique of existing housing policies which have served us well. It is an appeal for an exercise of greater flexibility towards Singaporeans who may be caught unwittingly by the current economic crisis. Allow me, Sir, to now cite some live examples for the Minister's consideration.

Scenario One

The drop in HDB resale prices has correspondingly led to fluctuating valuation levels. This has given rise to cases where a Sale and Purchase Agreement is entered into at an older, higher valuation level, and transaction completed at a lower valuation level, leading to a shortfall in loan quantum eligibility. Such a situation places parties involved in the transaction in a dilemma and creates a cash squeeze. Can some kind of bridging finance be provided for the shortfall?

Scenario Two

Some Singaporeans need more time to dispose of their existing flats upon taking delivery of their new flats. The sluggish market has led to lower-than-expected resale prices, so both timing and price expectations frequently go out of whack. Consequently, pressure from having to meet the deadline to sell off the existing flat mounts and stress is felt, especially by the upgraders. Even if the grace period were extended, they would still frequently have to finance two flats during the interim period. Can some restructuring of the two mortgage schemes be allowed so as to enable them to cope financially during this time? Scenario Three

Yet some other Singaporeans have no choice but to withdraw their applications or reject allocations for new flats. Others are forced by business or financial woes to downgrade from private properties or existing HDB flats. Some of these persons have no means to buy on the resale market but are disallowed from applying for a rental flat under current rules. Can the consequences of their decision, in terms of debarment, penalty, or forfeiture be administered with flexibility?

Finally, a comment on sale among ethnic grouping guidelines. Sir, allocation along ethnic grouping guidelines is well justified. Unfortunately, they pose a real challenge to resale potential during this crisis, owing to a much smaller market demand. Can the Minister comment on how the HDB can help Singaporeans cope with this crisis, specifically for the above scenarios?

The Chairman: Dr Tan Cheng Bock is not here. Dr Wang Kai Yuen.

Dr Wang Kai Yuen (Bukit Timah): Sir, HDB has a policy to maintain the distribution of ethnic households in a neighbourhood to reflect the racial composition of our nation. I support this policy. This is a wise policy. However, strict implementation of this policy might cause difficulties when the owners try to sell their flats in the resale market. This is especially so for the precincts that are physically small in size. One case in point is the Toh Yi Estate in the Bukit Timah GRC. There are altogether only 19 blocks in the precinct, in fact two of which are 4-storey shophouse blocks and two more are walk-up 4-storey maisonette apartments. So actually we are talking about a very small precinct here, and this is a precinct favoured by the Chinese without too many facilities that the other races would normally prefer. In fact, there are many cases of Malay owners trying to sell their flats in the open market and the only buyers they could find are Chinese families. HDB would typically disapprove of such sales. This has caused great financial hardship to these Malay families, especially during this time of economic downturn.

I would like to ask the Minister whether the HDB could be flexible in implementing this policy to take into consideration situations like the Toh Yi Estate.

The Chairman: Mr Chng is not here. Mr Kenneth Chen.

Mr Kenneth Chen Koon Lap (Hong Kah): Sir, during 1996 the waiting list for HDB flats had gone up to around 150,000. Since the start of the financial crisis, the number of applicants has declined rapidly. I understand that it is around 80,000 now. Because of the shorter waiting list and many have downgraded their flat type, some of the applicants have been advised to take possession of their flats earlier than scheduled. This presented a lot of problems for the applicants because when they made the application for the flat, they coincide the timing with the selling of their existing flat, especially those upgraders. And when they are asked to take possession of their flats earlier, some of them are unable to do so. They cannot sell their existing flat in time because of the time restriction and therefore cannot meet the financial obligation for their new flat.

I hope that the HDB can look into this and make the necessary adjustments, so that the applicants can receive a more accurate hand-over date and enable them to make their change over to coincide with the HDB schedule.

I would also like to ask the Minister what is the impact of such a decrease in number of units to be built on the HDB building programme. Would the scaling down affect the pricing of the flats, since the price of the flat takes into consideration the overall overhead and administration costs? And how did HDB forecast the number of flats to be built in such a time of uncertainty?

Mr Ang Mong Seng (Bukit Gombak): (In Mandarin): Sir, at the moment, more than 86% of our population are living in HDB estates, and 96% own their flats under the home ownership scheme. In order to ensure that old estates enjoy better facilities and a better living environment, various upgrading programmes such as the MUP, IUP and Selective En-Bloc Redevelopment Scheme (SERS) are introduced.

Sir, to qualify for the Interim Upgrading Programme (IUP), the flats must be between 10 and 17 years of age. Under the programme, the Government bears all the expenses incurred and the residents do not have to pay for anything. Upgrading works are carried out outside the flats and the inconvenience caused to residents is minimal. IUP improves the living environment and enhances the value of the flats. Usually, IUP receives more than 95% of support from the residents. In some cases, the support is as high as 99%.

The Main Upgrading Programme (MUP) is meant for flats which are more than 17 years old. In this case, residents have to pay between $15,000 and $25,000 per unit to have their floor area increased by about 6 square metres at the balcony or the toilet. Works have to be carried out inside the flats, and the whole project takes some two or three years to complete. Much inconvenience is caused to the residents, especially the children and old people. The flats are all very old and most of them have leaking ceilings. Even after the upgrading, this problem still exists. Of late, the support rate for MUP has dropped from 90% to about 80%.

The third scheme is SERS which is for flats of 25 years old and above. In Singapore, land is scarce. In order to make better use of the limited land available, and because these flats are very old, it makes more sense to demolish them for redevelopment.

I have three proposals to make. Firstly, increase the number of IUP precincts from 18 to 25 so that more residents can enjoy the benefits. Multi-storey car parks and lifts should also be included in the IUP. Secondly, reduce the number of MUP precincts from five to three, and that it be done selectively for areas which have more 4- to 5-room flats. If possible, this MUP can be repealed for redistribution into the IUP programme or SERS programme. Thirdly, I hope that MND can launch about 10 or more SERS programmes because this kind of redevelopment programme will not only benefit HDB but also the residents. So it is a win-win situation.

Sir, I would like to take this opportunity to request the Minister to reconsider the overall development of flats in my Bukit Gombak Constituency to solve the problems of some of these very old flats.

Mr Sinnakaruppan: Sir, the Government introduced two upgrading programmes, Interim Upgrading and Main Upgrading Programmes, to help upgrade older housing estates. Over the years, the Interim Upgrading Programme has been expanded and now, with the inclusion of the lift landing at every floor, many residents find that IUP is almost as important as MUP. Perhaps, the main distinguishing feature in the MUP is the space adding item (SAI). But looking at the feedback from many residents, most residents are very happy with the lift landing in every floor and covered linkways that takes them to the bus stop.

First, space adding item. During the pilot phase, it was allocated 10 square metres. But over the years, it was reduced to 6 square metres and to build a bedroom with 6 square metres is indeed very difficult. I am sure, Sir, you will find it very difficult to go into a 6 square metre bedroom. Sometimes, it is used for toilet, utility room or an extension of the balcony, and so on, of the living room.

Sir, given the size and cost, as Mr Ang Mong Seng has just pointed out, it costs about $25,000 in total to build this SAI for 4-room or 5-room flat and the residents pay about $15,000 for a 4-room flat and about $17,000 for a 5-room flat. This works out to a total cost of about $4,200 per square metre which by HDB cost standards is relatively high. Sir, given this and given the trend that many 4-roomers and 5 roomers are starting to upgrade to ECs and low-end private properties, I think we need to question whether there is a need to offer, as an option, SAI for 4 roomers and 5 roomers. I believe that 3 roomers will still find that having this SAI will be very useful, particularly with the larger Government subsidy. But maybe it is time to review the SAI option for 4-room and 5-room flats.

Dr Wan Soon Bee: Sir, since 1992, selected old HDB flats have been undergoing upgrading through the Main Upgrading and the Interim Upgrading Programmes. These programmes are highly popular with the residents since they have brought about new facilities and amenities in the precinct as well as an enhancement in the value of the flat in the resale market. The recent announcement on the cutback of the upgrading programmes as a result of the economic recession has to some extent put a brake on these upgrading projects and perhaps given us an opportunity to review the programmes. I would like to suggest two areas for such a review.

First, in the selection of precincts for upgrading, HDB should consult the MP concerned in the identification and demarcation of the precincts. This is necessary because over time, neighbourhoods would have evolved and established their own identities through activities organised by the grassroots organisations. When a precinct is selected for upgrading, it would be more meaningful if residents can identify with that precinct. Currently, the lack of consultation has led to a selected precinct that straddles two RC zones, as happened in my constituency. The improvement works which are being planned may have to be duplicated because of the need to serve the activities of two different Residents' Committees.

This brings me to my second issue. While there is no doubt that the upgrading programmes have helped to improve the living environment of the old HDB estates, I am concerned that some of the features and projects being introduced in some precincts are repetitive and not fully utilised. For example, it is a waste to have covered linkways all over the precinct just to satisfy every single resident. Features which may have high aesthetic value but are hardly used when completed are really unnecessary. Such duplication and under usage is not cost effective. Besides they have a serious impact on the long term maintenance cost. Perhaps the HDB could ensure greater coordination amongst the precincts undergoing upgrading so that the improvement works carried out are well chosen and cost effective. If we could cut down on some of these duplications and unnecessary improvement works, the savings could be redistributed to more precincts and more residents could benefit from the upgrading.

Dr Ker Sin Tze (Aljunied): (In Mandarin): Since 1992, HDB has been selling shops to sitting tenants, and has sold about 7,600 shop units hitherto. In 1997, HDB also began to sell some 30-year lease shops at a lower price because the lease was shorter. These cheaper shops were welcomed by the sitting tenants. Up till now, some 444 units of 30-year lease shops have been sold under the scheme to the sitting tenants.

But in April 1998, HDB stopped selling its shop units. Many shopkeepers want to know when will HDB sell the shops to them. I believe HDB is holding back the sale because of the poor sentiments in the property market today, and to sell shop units at this moment will further lower the value of the shops, and people who bought the shops earlier would feel they have suffered a book loss as they had bought their shops earlier at higher prices. On the other hand, those who have yet to buy over the shops which they are renting at the moment desire to buy the shops now because the prices are low at this moment and it is the right time for them to buy their shops. If HDB holds back the sale of these shops to them, they will harbour the feeling that HDB is waiting for prices to go up before they sell the shops with the aim of making more profits.

Actually, HDB has already sold about 7,600 units of shops. The remaining number of shops to be sold will not be very large. That being the case, as long as the number of units offered for sale is not too large, the effect of lowering the existing price will not be very significant. So I would suggest that the Minister consider the request of the shop tenants to resume the sale of shops to them, especially the 30-year lease shops which are very popular among the residents.

Mr Tay Beng Chuan (Nominated Member): (In Mandarin): Sir, to the industrial and commercial sector, the problem of land rent has all along been a big headache. It is one of the biggest items in their business cost. Fortunately, in the cost cutting package announced last November, the Government has attached great importance to this matter. It has also agreed with the recommendation of the Committee on Singapore's Competitiveness (CSC) that the two biggest landlords, namely, the JTC and HDB, should also adopt the rent reduction measures, particularly to reduce the rents of industrial land and factories substantially down to the level of the early 1990s. The industrial and commercial sector is of course very grateful to the Government for its care and concern for the people.

However, many people in the trade are sceptical about the implementation of these measures. The main concern is while the Government has agreed to reduce the rent substantially to that of the level of the early 1990s, the tenants of HDB are still required to enter into a lease agreement with the authorities on the "posted rent" and a pre-determined rate of increase. The question is: what is the basis for the fixing of this posted rate, and whether it is in line with the market condition or based on other factors? By right, if the Government is determined to reduce the rents to the level of the early 1990s to ensure our competitiveness, then the terms in the new lease agreement should be based on the level of the 1990s. But I feel the present lease agreements are still being entered into based on the recent years' level, and the authorities have no intention of reducing the rents to the level of the early 1990s.

I know of a company which has leased some industrial land from HDB in Defu Industrial Estate on a 30-year lease in order to manufacture light industrial products. According to the terms stipulated by HDB, the land rent would be increased annually by 7.6% from 1990. By 1999, the rent per square foot has been raised to $59.91, a total increase of 71.2%. According to the CSC recommendations, the rent should be adjusted to the level of 1990, that is, at $35 per square foot. But in the new lease agreement with HDB, the rent is reduced by only 10% to $53.90 per square foot and thereafter it would have to be raised annually by 4%. According to feedback from people in the trade, the market rental value of industrial premises (or factory space) in this area has already dropped from its peak of $2.50 per square foot to about $0.80 per square foot, which is a drop of 68%. Even then, it is difficult to get tenants. Since the market value has gone down by such a big scale, why is it that the HDB is only providing for a 10% reduction in the land rent? How can we convince the people that the Government is determined to adjust the rent of industrial land to the level of the early 1990s?

The business community has suffered a great impact from this crisis and apart from trying to solve all the problems in the operation, they have to find ways and means to upgrade themselves to enhance their competitiveness. What they need is a favourable business environment provided by the Government for them to set up their business, to develop their business so as to contribute to our economic and social development. Rent is a burden that the businessman cannot run away with, so we have to reduce it to a reasonably low level, otherwise they will have difficulties making ends meet and the effectiveness of these cost-cutting measures will be in doubt. In view of that, I hope that the Government would set up an independent committee to oversee adjustments to rents for industrial land and factory space to ensure HDB and the JTC would abide by the principles set down by the cost-cutting package, thereby reducing their rents to the level of the early 1990s.

As for difficulties faced by the tenants, I hope that the relevant authorities would give them the necessary assistance and not to rub salt into their wounds by imposing an interest rate of as high as 8.5% for arrears in rent. I think we should reduce the rent to a reasonable level, and help the businesses which are in trouble. Perhaps for those who simply cannot carry on with their business, the authorities should consider taking back the land or factory space at a reasonable price and then rent it out to other parties so that the land could be recycled and put to good use. Land is scarce in Singapore and it is an important resource relied upon by the businessmen for their business operations.

In fact, in its report issued last year, the CSC has also emphasized on the optimal use of our land to make sure that the land would be rented out at a reasonable and competitive rate so that we can have a world-class infrastructure on our land. I feel that the available land in our HDB estates should be put to full use by allowing some suitable economic and business activities to be carried out in the common areas.

I also hope that the Government would allow the residential units above the shophouses to be used for business activities too. Most Singaporeans have their own apartments, and more often than not, these residential units above the shophouses are not occupied. If we could allow these units to be used for some form of business or commercial activities, they can be put to good use, and at the same time it will help to reduce business cost for the shopkeepers.

Dr Teo Ho Pin (Sembawang): Sir, to meet the rising expectations of Singaporeans, HDB has been building better quality flats over the last 10 years. More sophisticated and complex designs were introduced in many estates and new towns especially with the introduction of design-and-build flats. Today, you can see that our HDB flats come in different designs and a wide variety of building finishes and fittings.

Although the design of flats has increased the aesthetic value of our flats, there are some problems associated with these designs. These problems may be classified into the following:

a) Maintenance problems - certain designs pose maintenance problems. For example, the introduction of protruding concrete or steel sunshades on the facade of buildings has obstructed the movement of gondola for re-painting works. The use of tempered glass for covered linkways and low level glass light fittings is prone to frequent vandalism and abuses;

b) Maintenance cost - the use of expensive light fittings and finishes has increased the cost of maintenance drastically. This has added much financial burden to Town Councils;

c) Security problems - certain designs of flats have dark corners or easy access for thieves to gain entry into flats. Enclosed fire escape staircases also provide a convenient spot for drug abusers;

d) Mosquito breeding - the provision of bamboo hanging poles and ponding of water at roofs, parapet walls, and scupper drains are potential mosquito breeding grounds. Sometimes, these breeding grounds are inaccessible for maintenance; and

e) Noise problem - inadequate consideration in the design of the layout of flat and acoustic provision may cause much problem in noise pollution. More neighbours are complaining against each other of noise nuisance in recent years.

I must commend the PAP Town Councils for taking the initiative to form a Maintenance Feedback Committee which is working closely with HDB to further improve the designs of our flats. With constructive feedback, I am confident that PAP Town Councils will provide a better quality environment to our residents.

In addition, I would like to suggest the following for the Ministry to consider:

a) Conduct an independent quality audit on the design of HDB flats during the design stage;

b) Document good design practices to guide architects and engineers;

c) Second architects and engineers to Town Councils to better understand maintenance problems; and

d) Set a buildable and CONQUAS score to be achieved for all HDB flats.

Mr Low Thia Khiang: (In Mandarin): Sir, in 1997, I wrote to HDB to inform them that the design of new flats in Hougang Constituency was such that it was prone to burglary. After some investigation by its architecture department, HDB told me that no burglar would take such a big risk climbing over the external wall to enter a flat. However, a recent report of the Police confirmed that what the residents in the area were worried about could indeed happen. I would like to know whether HDB has any remedial measures for such defective designs which can cause security problems to the residents.

On the other hand, I notice that in the new precincts, blocks of flats are built very close to one another. I have received feedback from the residents that the flats are so close that they can fight with people in the opposite blocks simply by stretching out their bamboo poles.

Not long ago, at the 5th Southeast-Asian Geographical Conference, the Geography Department of our National Institute of Education presented a study report which revealed that the design of many HDB flats is such that there is difficulty for heat to be dispersed at night, thereby resulting in a general rise of temperature in Singapore. One of the factors is that the blocks of flats are built too close to one another.

I would like to know whether in developing new towns, HDB has taken consideration into the possible effect on our natural environment and the question of privacy of the residents.

Dr Lee Tsao Yuan: Sir, the number of first-timers who dropped out of the new flat queue increased from about 950 in the fourth quarter of 1997 to about 3,000 one year later in the fourth quarter of 1998. There are various reasons cited by the Minister in a written answer. Of all the reasons, two of the most important must surely be price and size.

Today, property prices, including a resale HDB flat, has fallen roughly to about the 1993 levels. In contrast, the prices of new HDB flats have not dropped. Surely the prices of new HDB flats should move in line with the rest of the market. Is it because they are costed at historical prices when land prices were still very high? Also, since land sale has stopped for one year, at what price does HDB buy land? Surely this cannot be set at historical prices which do not sufficiently reflect market movements. I understand that new HDB flats are highly subsidised. I am not suggesting that the subsidy be increased in order for prices to fall. But perhaps there could be a float where the prices of HDB flats are concerned and it is this float factor which could move with the market.

Another reason for the dropping out could be because new flats are much smaller than existing flats of the same type. For example, up to two years ago, 4-room flats were about 110 square metres in size. Now they are about 90 square metres. And a new 5-room flat now has the same floor area as an older 4-room flat. It is a puzzle to me that as per capita incomes in Singapore rise, flats of the same type are getting smaller instead of getting larger. On top of that, the civil defence shelter takes up additional space. Could one of the reasons be because of the fact that two years ago, during the height of the property boom, land prices were so high that a 125-square metre 5-room flat would have been too costly, and so smaller flats were designed instead? To the extent that HDB policies are set during boom times and geared to rising prices, it is time that they be re-evaluated in today's changed circumstances.

2.15 pm

Mr Lim Hng Kiang: Let me just set the general environment before I go into the specifics. I think Mr Kenneth Chen is right. The waiting list has dropped from 146,000 to 84,000 now, so this is a drop of 42%. Secondly, the resale prices have dropped by 27% since its peak in the fourth quarter in 1996. Third, the resale market has been very active. It was about 40,000 in 1996-1997. Last year, there were 65,000 transactions in the resale market. Fourth, our CPF housing grant has been very successful. To date, we have disbursed more than $1.3 billion on our CPF housing grant. So if you look at this backdrop, basically, the adjustments that we see in the HDB sector can be understood.

What are the implications? First, on the building programme, Mr Kenneth Chen asked what we would be building. With the waiting list now more manageable, the HDB building programme will have to come down, but we will adjust it gently. The building programme in 1998 was 28,650 units, comprising 22,000 flats in the non-mature estates, 6,000 flats for SERS and 650 studio apartments for the elderly. This year, HDB plans to build 26,500 units, comprising 20,000 flats in the non-mature estates. So it is only a reduction of 2,000 flats. And we intend to keep the SERS programme at around 5,000-6,000 flats. Similarly, for the studio apartments, we hope the pilot project would work and we can continue to build around 600 studio apartments for the elderly. Over the medium term, we would have to adjust the building programme in line with the waiting list.

On pricing, the principles on pricing new HDB flats remain the same. Basically, we want to ensure that HDB flats are affordable to Singaporeans. The benchmarks we use are that 90% of Singaporean households will continue to be able to afford at least a 3-room flat. And 70% of Singaporean households will continue to afford a 4-room flat. Based on these affordability indices, we track the various sectors of the population to make sure that the HDB flats continue to be affordable to them.

Dr Lee Tsao Yuan asked what has happened to the new HDB flats now that resale prices have come down. Basically, the HDB new flats have been adjusted downwards by between 5-8% last year. We did not follow the sharp drop in the resale prices, because the land that HDB buys is pegged to the resale prices. So the land prices have come down from the Land Office. The flat prices have not come down because previously the market subsidy was more than $100,000, which is out of sync with the CPF housing grant. If the CPF housing grant is around $35,000-$40,000, then the market subsidy for a new flat should be around $60,000-$80,000. So the prices of the new HDB flats now reflect this market subsidy.

The new HDB flats continue to be heavily subsidised, as we show in the HDB Annual Reports. The overall sale proceeds are not sufficient to cover the total development cost and therefore the Government has to fund the HDB for the development loss incurred by way of an annual grant. In FY97-98, the deficit for the sale of flats amounted to $591 million.

What I think is different in this year's debate is the economic situation that we face and therefore what is required of us is to have assistance schemes to help Singaporeans cope with the downturn, and also MPs have requested flexibility by HDB in administering existing policies, so that Singaporeans can better deal with the downturn. I hate to be glib and say flexibility is HDB's middle name. But let me assure the House that HDB will exercise flexibility as far as it can, so long as basic principles are not contravened. Or that in exercising this flexibility, we create more problems in the long run. This is one of the basic problems of HDB. The more flexibility is exercised, the more complicated the rules. I would say that except for the ethnic integration policy where HDB has zero flexibility, on everything else we will consider requests from MPs.

Let me first talk about the ethnic integration policy. This was introduced in 1989. When it was first implemented, 35 or 28% out of 125 neighbourhoods in public housing estates had reached at least one of the ethnic limits. After the implementation of the policy, the ethnic balance in HDB estates has improved. As at February 1999, the number of neighbourhoods has increased to 163, but only 29 or 18% of the neighbourhoods have reached one of these ethnic limits, and therefore the ethnic integration policy has achieved its objective in promoting racial integration in public housing estates. And I must tell you that we have achieved this by having zero flexibility.

Our neighbourhoods all come in diverse sizes. So I understand Dr Wang Kai Yuen's problems, but I am very reluctant to tinker with the ethnic integration policy just because neighbourhoods are smaller. So, other than the ethnic integration policy, everything else is flexible.

Let me now turn to what we can be flexible. Mrs Lim Hwee Hua asked about valuation of flats. The valuation is good for three months, and with that 3-month period, most people should be able to transact their resale flats. Sometimes we do allow extension of the valuation reports, but we do so carefully.

For those who are asked to sell their flats within six months, she also asked whether we could extend it. HDB usually exercises flexibility and allows the upgrader to sell beyond the six months, giving a further extension of six months.

On applicants who have sold their flats and are debarred from rental flats during the next 30 months, again, HDB will exercise flexibility. If the applicant is in financial difficulties, HDB will consider his case.

Mr Kenneth Chen asked for the hand over date to be more carefully projected and if possession is taken earlier than scheduled, that we allow the applicant to sell his flat even though the occupation period is not fulfilled. Again, HDB will exercise flexibility on a case-by-case basis.

Let me now turn to the set of questions on upgrading. Just to give Members the overall framework, when we look at the housing estates, we develop an estate renewal strategy for each of the old housing estates. Three of the main programmes in the estate renewal strategy are the Selective En-bloc Redevelopment Scheme (SERS), the Main Upgrading Scheme and the Interim Upgrading Scheme. Wherever possible, we will implement the Selective En-bloc Redevelopment Scheme, but it must be economically and financially viable, ie, the redevelopment potential must be at least twice the existing output of units, because we are literally tearing down the flats. We are demolishing the value of the units, and what we get is just land. So the land must be able to yield at least twice the number of units to compensate for the loss in the building cost.

Where the flats cannot be redeveloped and if they are old enough, we would undertake the Main Upgrading Programme, and we undertake the Interim Upgrading Programme for the younger flats, as a way of improving the estate before they are upgraded under the Main Upgrading Programme. With that framework, I hope Members can better understand how we select and how we identify precincts for the different programmes.

Mr Ang Mong Seng suggested that we raise the number of IUPs, lower the number of MUPs and keep SERS at 10 precincts. We intend to keep SERS at 10 precincts per year. We have decided to reduce the MUP to five, and not to three, because we want a fair balance of upgrading between the older flats and the younger flats. Mr Ang Mong Seng's proposal would favour the younger flats - 25 and only three for the older flats. Keeping the MUP at five and the IUP at 18, I think it would give a fair balance across the various ages.

Mr Sinnakaruppan asked why do we offer space adding item to the 4-roomers and the 5-roomers. I agree with him that it is very expensive, because we have to divert the services and it costs a lot. Because it is expensive, we do not encourage space adding item for 4-roomers and 5-roomers and, therefore, we institute a fairer cost-sharing ratio. Therefore, it is entirely up to the 4-roomers and 5-roomers whether they consider it of value to them to do the space adding item. If all the Members here feel that we should not offer space adding item to 4-roomers and 5-roomers, I am prepared to be convinced.

Dr Wan Soon Bee asked us to review the MUP programme after sufficient experience with it. He requested that the MP be consulted on the demarcation of the precinct boundaries. I would assure him that we try to do so. Sometimes the precinct straddles two RCs. It is a toss up whether you fit the RCs with the precinct boundaries which are physical and therefore more inflexible, or you fit the physical boundaries of the upgrading to the RCs, which is whether you fit the hardware or you adjust the software. I will leave it to the MP to decide. If indeed his RCs are so stratified, then we will break up the physical boundaries. If not, I think it is better to have the precinct forming a natural physical entity.

Dr Wan Soon Bee also asked that there be less repetition and duplication in the covered linkways, and asked HDB to coordinate. I think we will try to do so. But MPs play a very important role, because the MPs are the advisers to the working committees of each MUP precinct. The MPs are also the advisers to the Town Council which undertakes the IUP and also undertakes the CIPC developments. So, really, a lot of coordination is done on the ground, and not necessarily by the HDB itself. So it is entirely up to the MPs how they coordinate the walkways and the various developments.

Dr Ker Sin Tze asked why there was no sale of shops since 1998. We held back the sale of shops because we were not certain how the regional economic crisis would impact on the sale prices. Now that the situation is more stabilised, we will look into reactivating the sale of shops.

Mr Tay Beng Chuan asked that rents be reduced back to the levels of the 1990s. If he says that we reduce the rent to the market rent of the 1990s, I think there is a strong case for it. But I suspect what he meant was the resettlement rent of the 1990s. Let me explain. We have a very diverse group of tenants in our industrial shops. Many of them are resettlement cases. Some of them tender for the premises and pay market rent. The resettlement cases could sometimes pay only 20-30% of the market rent. We are now in the process of moving the resettlement rent closer to the market rent, and reducing the market rent to the current market rent, which reflects 1993-1994 rents. We are indeed moving towards the market rents of the 1990s. But for the person who has been enjoying very low resettlement rent, his resettlement rent in the 1990s was only 20-30% of the market rent in the 1990s. So he will see an increase in his individual rent. But we will take a look into this and see how we could resolve this. If the various associations are prepared to have the 1993 or 1994 market rent across the board, I will be very happy to move everybody to that single rent. That means we must carry all the resettlement cases along.

Mr Tay Beng Chuan asked for the residential units above the shops to be used for commercial uses. My own personal view is that this will complicate matters. One of the problems we face today is excess supply of commercial space, especially in the older estates. The purchasing power in the older estates has dropped. Younger families with bigger incomes have moved out. The shop space remains the same and therefore there is an excess in shop space and a reduction in demand. If we now allow the residential units above the shops to be converted to shop space, it will worsen the supply situation. So the approach to this is to restructure. And when we redevelop, make sure the shop space is commensurate with the purchasing power of the immediate catchment. 2.30 pm

As for flat design, I have no wish to go through the details. I thank Members for their comments. In fact, HDB has scheduled a seminar together with all the Town Councils to pass all the design features and how they may give rise to maintenance problems, security problems, mosquito breeding problems and noise. We will leave it to the professionals to sit down and resolve this. What it shows is that there must be better institutional feedback between the HDB and the Town Councils. We had that in the past when the estate management was part of the HDB. We have tried to put in this feedback loop, but obviously it can be improved. So a regular seminar between the various groups would help to improve the situation.

Mr Kenneth Chen Koon Lap: Sir, at present, applicants for HDB rental flats have to wait no less than two to three months for the flat, depending on the availability, as the number of rental flats is limited. However, during this time of economic difficulties, the number of applications must have increased significantly, as is indicated by the increased number of people who have approached me during my meet-the-people session. This means that the waiting list would be much longer. As those who require renting these flats are generally from the lower income family or individuals, the usual recommendation by the HDB is for them to rent a room from the private property or other HDB flat owners would not help as even such rentals are beyond their affordability. I would like to request the HDB to make available more rental flats at the present time to provide accommodation for those who need rental flats at this point of time.

I am glad that the Minister has promised to be more flexible to those who encounter economic difficulties and have to sell their flats and look for rental flats and overcome their 30-month time bar.

Finally, I would also like to ask whether it is possible for the Minister to consider to have some 3-room flats for rental as some of those who need to rent flats have a family of four to five persons. They could not possibly be packed into one or two room flats.

Mr Low Thia Khiang: Sir, since June 1994, the HDB started selling rental flats to tenants. I would like to know how many such flats have been sold to-date and where are these flats located. I would also like to know what are the criteria for consideration under which these flats would be selected for sale to tenants.

In the Sunday Times of 12th January 1999, Mr Matthias Yao was quoted to have said:

"I applied for it and I was pushing for it. I am very happy that within a week of election results, the HDB has agreed to this."

I would like to know from the Minister whether the sales of rental flats to tenants are also linked to election results.

I request the HDB to sell the rental flats in Hougang Constituency to the tenants. The blocks that I request for consideration are as follows:

(1) Blocks 8, 9, 10 and 25, Hougang Avenue 3;

(2) Block 313, Hougang Avenue 5; and

(3) Blocks 315 and 316, Hougang Avenue 7.

Mr Lew Syn Pau: The HDB studio apartment scheme is a new scheme that was announced in November 1997, and subsequently a pilot project was launched in March last year. I would like to ask the Minister how well received the scheme has been; how is the price fixed, and would it be lowered since the property market has declined substantially since the scheme was first announced; and how many more studio apartments would be released in a year.

Mr Chew Heng Ching: When the studio apartments for the elderly project was announced, my constituency in Bedok North, East Coast GRC, was selected as part of the pilot project. As Mr Lew has said, the project was successfully launched in the later part of 1997 and the response was good.

Many of the senior citizens in my ward applied to purchase the apartment. The scheme was attractive as they could sell their existing 3- or 4-room HDB flats and buy these studio apartments, and yet pocket the difference in price as cash to see them through their remaining years of life. Depending on the size of these studio apartments, the prices range from about $60,000 to $85,000. However, Sir, since the launch of this project some 16 months ago, the prices of their existing HDB homes had fallen by some 20% to 30%. Many of them now realise that they have less cash available to see them through their remaining years in life, if they participate in the scheme. Many of the senior citizens have therefore approached me to appeal to the HDB to lower the prices for the studio apartments.

I am therefore seeking the Minister's approval to review the scheme and to lower the prices for these studio apartments on the grounds that, through no fault of their own, these senior citizens will now have substantially less cash to see them through their life. Unless the prices of these studio apartments are lowered by some 20% to 30%, many of these senior citizens may consider pulling out of the scheme. I therefore urge the Minister to consider their request and ensure that the success of the studio apartments for the elderly scheme stays.

Dr Wan Soon Bee: Sir, the proposal for studio apartments by the HDB is a timely solution towards elderly housing. I would like to make two suggestions to improve the proposed scheme.

First, I would like to suggest that HDB reconsider the conditions of sale that the studio apartment is only open to the HDB lessees who have lived in their flats for at least 10 years. If the proposed scheme is to provide housing for the elderly, it should not be restrictive to the potential applicants. An elderly couple who have lived with their children in private property may due to changing circumstances need accommodation of their own. If they so choose to apply for a studio apartment, why should they be denied just because they have not lived in a HDB flat before? As the scheme is available to those aged 55 and above, it is unlikely that those who need to apply for the studio apartment are still drawing a large income, whether or not they have lived in a HDB flat before. With little or no steady income, it would be unfair to deny such applicants who have a real need. I suggest we open up to anyone above the age of 55.

Secondly, I refer to the condition that the owner will not be able to sell the studio apartment in the resale market. I am recommending that this condition be reviewed for the following reasons:

This condition will restrict the mobility of the owner. Suppose that the owner's family has moved to another estate, it would make sense for him to sell his present unit and buy another one to be closer to his family. The current condition entails that the owner can only sell it back to the HDB which will curtail the mobility of the owner.

Allowing the sale of the studio apartment in the resale market will also provide an alternative to potential buyers in the queue, similar to the circumstances existing in the HDB resale market.

Given the Government's move to encourage individual responsibility or retirement plans, the purchase of a studio apartment should also be considered as an investment rather than a payment for old age accommodation.

If the studio apartment is a concept purely to satisfy old age accommodation, it might lead to the deepening of the connotation that the studio apartment is an old-age home. In this light, studio apartments might eventually become slums for the old. We must not allow the studio apartments to become another form of old-age home.

If the argument is to control speculation, although I do not think that this will happen given the short tenure, then perhaps the condition could be amended to restrict the sale in the open market for the first three years of ownership.

Mrs Lim Hwee Hua: Sir, with increasing nuclearisation of families in Singapore, the trend of older persons living by themselves will rise in tandem. Within this group, over time, a possibly significant subset could be households which are reduced to a widowed older person living alone, and who may not be able to get support from family members.

In circumstances where this older person is unemployed, he, or more frequently she, may end up with a physical home but cash-strapped. By definition, she does not qualify for public assistance.

A feasible resolution to generating cash to meet living expenses could be in the form of a reverse mortgage on her existing flat. This has significant advantage over the options of downgrading to a smaller flat or queuing for a rental flat after selling off the existing flat or buying a studio apartment as all these three options require a re-location.

Currently, reverse mortgages exist only for private properties but not for HDB flats. Can the Minister explain the reasons for not allowing reverse mortgages on HDB flats, and would the Minister review the situation, given the plight of this group of older persons?

Dr Teo Ho Pin: Sir, may I have your permission to take the two cuts together?

The Chairman: Yes.

Dr Teo Ho Pin: Sir, the regional crisis has affected many Singaporeans, especially the HDB heartlanders. With the introduction of CPF and pay cuts, some HDB dwellers are facing difficulty in paying their rental or mortgage loan instalments.

As a caring Government, I understand the HDB has implemented a number of initiatives to help HDB dwellers. I hope the Minister can clarify the various assistance schemes available for the following groups of affected residents:

(1) Those who are in arrears in their rental or mortgage payments;

(2) Those who would like to restructure their mortgage loan due to retrenchment or other reasons;

(3) Those who would like to request for downgrading due to affordability problem; and

(4) Those who face problems paying the 20% deposit when taking over the flat.

Sir, the Estate Renewal Strategy (ERS) was first announced in 1995 to rejuvenate older HDB estates to make them compatible to newer estates. Under the ERS, Main and Interim Upgrading Programmes and Selective En-bloc Redevelopment Scheme were implemented in many constituencies. Although MUPs and IUPs have managed to spruce up older estates, there are certain shortcomings:

(a) Residents are inconvenienced during the construction period which normally lasts two years. Dust, noise and security are key concerns of residents in these programmes.

(b) MUPs and IUPs are sometimes unable to meet the needs of residents, especially in the provision of lifts that stop at every floor and covered linkways. Due to the design of these old flats (especially those with staggered corridors), it is not economical and structurally possible to install lifts that stop at every floor or construct linkways which can benefit all residents in these blocks. This is a drastic setback of MUPs and IUPs.

(c) MUPs and IUPs are unable to intensify the land use of these older estates which usually have large open spaces. Many of these older flats are 10 to 12 storeys high, and thus deprive the opportunity for higher density development.

Based upon feedback, the Selective En-bloc Redevelopment Scheme provides a better alternative to rejuvenate older HDB estates. Better quality and higher density flats can be built to maximise land use and provide better housing to Singaporeans while keeping the community intact. However, to achieve this, there must be adequate vacant land set aside for such programmes when developing semi-mature estates or new towns. I notice that not much vacant land was set aside in many estates. Thus, it would be difficult for the Government to consider Selective En-bloc Redevelopment programmes in the future.

In this regard, I would like to suggest the following for the Ministry to consider:

(1) Increase the Selective En-bloc Redevelopment Programme; and

(2) Set aside more land for future SERS in semi-mature estates.

Mr Lew Syn Pau: Executive Condominiums were introduced at the height of the property boom when the "sandwiched" class could not afford private apartments. At the same time, they were not qualified to apply for HDB flats or Executive flats because of the income ceiling. The Executive Condominiums served a useful role at that time. Since the decline of the private residential property market, the lower end of the private condominium market has become very affordable and already provides the next logical level of upgrade for HDB dwellers. Is there any need therefore for Executive Condominiums today? Besides, I believe that the Government should confine itself to providing basic housing for the masses and leave the supply of the more up-market ones to the private sector.

Will the Minister tell us whether there is a review of the role of Executive Condominiums and, if so, whether there is any plan to continue building such Executive Condominiums?

Mr Lim Hng Kiang: Let me thank Members for their cooperation. We seem to be moving along now at a better speed.

Mr Kenneth Chen asked about rental flat applications. Our statistics show that there are not more applicants than previously. The waiting list remains the same. In February 1999, the waiting list was 1,331; February 1997 it was 1,341. HDB would continue to make rental flats easily available to applicants.

Mr Kenneth Chen also mentioned that 3-room flats have not been provided as rental flats. This has been so since 1982. I will get HDB to look into the possibility of reopening 3-room flats for rental applications.

Mr Low Thia Khiang asked for the criteria for sale of rental flats to sitting tenants and he also requested for the sale of the rental flats in the various blocks in Hougang. Let me explain the sale of flats to sitting tenants scheme. Primarily, it is to help those who are already renting flats to have the opportunity to own the flats. So it is our policy to encourage sitting tenants to buy over the flats that they have been renting.

There is a strong demand for rental flats in Hougang. There are not very many rental flats in the area. It is a very popular area and therefore we have no plans to offer rental blocks in the Hougang area for sale to the sitting tenants at this juncture. There is still more demand than available flats in the Hougang area.

The studio apartment scheme for the elderly was announced in November 1997 as a new housing scheme to cater to the special needs of our senior citizens. Elderly lessees who wish to realise the appreciation in value of their existing flats can consider buying a studio apartment that is purpose-built to serve their needs. The pilot project of the studio apartment scheme was launched in March last year at four sites, with a total of 650 studio apartments. The response has been encouraging and we have announced that we will have two more sites in Bukit Merah View and Toa Payoh Lorong 4. We will continue to identify more sites if there is demand from our elderly lessees.

I think the MPs have made a strong case about the difficulties faced by their residents in purchasing studio apartments as resale prices of their existing flats have fallen. I have earlier asked HDB to review the prices of studio apartments to ensure that elderly lessees would still find them attractive. I am now pleased to announce that HDB will be reducing the selling prices of studio apartments by 25% for both the 35-sq metre and the 45-sq metre apartments. Before you all get too carried away and argue for similar reduction in new flats, let me explain why we are able to secure this reduction after very tough negotiation with the Chief Valuer and the Land Office.

We were able to do so because of the lower land prices on the one hand, and also lower tender prices on the other hand. The main source of savings is really from the lower land rates which have been given by the Chief Valuer and agreed to by the Land Office. Why were we able to achieve this? We argued that the studio apartments are sold under more restrictive terms and conditions compared to normal HDB flats. For example, they are sold on a 30-year lease compared to the 99-year lease for normal HDB flats. HDB also argued that there is no resale value. Dr Wan Soon Bee, please note. Therefore, the studio apartments can only be sold to a small group of elderly buyers above 55 years old. Furthermore, the studio apartments are located on small plots of land in built-up areas which are generally not suitable for more comprehensive development on its own. Therefore, taking into account all these factors, the Chief Valuer has valued the land prices for the studio apartments far lower than those for the normal HDB flats. I have also mentioned that the construction costs for the studio apartments have declined because we have adopted a more cost-effective and buildable design, and also there is a general fall in HDB tender prices. So we are now able to sell the studio apartments with a price reduction of 25%.

So the average selling price of the 35-sq metre apartments will now be $48,900 as compared to the estimated selling prices of $65,700 in November 1997. For the more popular 45-sq metre apartments, the average price is now $61,600, which is some $20,000 cheaper than that announced previously. We hope that the reduction in prices will make studio apartments more affordable to our elderly lessees.

For those who have earlier withdrawn their applications, they can request to reinstate their applications. HDB will be conducting the selection exercise for the pilot project soon and we expect the studio apartments to be completed by the year 2002.

Dr Wan Soon Bee made two suggestions. One, to relax the condition that the applicant must live in HDB flats for 10 years. We put that condition in because we want to give first priority to HDB lessees. In subsequent phases, I think we can consider relaxing this rule. The second suggestion is to allow resale. For the reasons I have explained earlier, we prefer to keep the studio apartments with the no-resale condition, so that there is no speculation and there is no bubble in the resale value of the studio apartments. It is strictly a scheme by which you convert your present flat to a studio apartment that will last you for the rest of your life, and you make use of the capital gain to give you an annuity, and to look after your medical expenses.

This is the same objective as what Mrs Lim Hwee Hua spoke about on the reverse mortgages. We have done the sums several times. It is not as attractive. Reverse mortgages are not so attractive in the HDB context because of the restrictions and the regulations that we have in place, making HDB flats less mortgageable to the banks. We will monitor the market to see how effective reverse mortgages are in the private sector market. And if we find that it is viable for the HDB sector, we will consider the application in the HDB sector.

Dr Teo Ho Pin asked about the difficulties of Singaporeans facing rental arrears, rescheduling of loans, downgrading and also the 20% deposit. Rental arrears, we will manage the problem compassionately. We will allow them longer time to settle the arrears through an instalment programme. The rental arrears problem is not very significant. Less than 4% of our rental tenants fall into three months' arrears or more. Particularly over the last few years, with the very generous rental rebates that the Government dished out, every time we have a very high rental arrears, the Government plays Santa Claus and the rents all get paid, and the rental arrears problem was solved by itself.

On rescheduling of loans, as we announced in November last year, we have five schemes by which Singaporeans can adjust their mortgage loans:

(1) They can reduce the monthly loan instalments for the first five years to 75% of the normal amount. This is called the reduced repayment scheme.

(2) They can reschedule the tenure of their loans to the maximum repayment period.

(3) They can defer payment of their monthly mortgage instalments for six months if they face financial difficulty. If necessary, HDB will extend the deferment period for another six months.

(4) They can include more working family members as joint owners so that the CPF monies can be used to settle the arrears and to service the monthly loan instalments.

(5) They can pay their loan arrears by instalments over a period of six to 12 months.

Since we announced these in November, more than 8,000 HDB mortgagors have come on-board on these various schemes. This is a very, very small percentage and therefore the problem is very manageable. The breakdown is that 5,800 have rescheduled their mortgage loan payments through the reduced repayment scheme; 1,200 have extended their mortgage repayment period; another 1,200 have deferred the payment of their mortgage instalments; 200 have included family members; and 300 are currently on instalment plans to settle their arrears.

On the question of downgrading, as we announced also in November last year, applicants on our queue who find that they now cannot afford the flats that they have applied for, can come to HDB to request for a change in their flat type, ie, downgrading of flat type. We will consider their requests flexibly.

On the 20% deposit, I am afraid we cannot exercise flexibility. I think this is part of financial prudence. If you want to upgrade and you want to buy a bigger flat, please pay up the 20% deposit.

On Estates Renewal Strategy (ERS), Dr Teo Ho Pin suggests that we put in place vacant land so that we can have Selective En-bloc Redevelopment in future. I do not know what the future will look like in 20-30 years. We have enough open space within our existing estates that if we want to undertake SERS in future, that can be done. But I must tell you that today the HDB estates are built to quite high density. Mr Low Thia Khiang has already complained that you can fight across the blocks with bamboo sticks. If we build to any higher density, you may be able to fight across with broomsticks.

Mr Lew Syn Pau asked about the status of the Executive Condominiums. I agree with him that when the property market was very hot, the role of the Executive Condominiums was very important and they came in very useful. Now that the prices of Executive Condominiums are coming much closer to the low end of private property, the Government needs to review the role and the demand for Executive Condominiums. As we have announced earlier, we will take this review as part of the September 1999 decision on how much Executive Condominium land supply we will release for next year.

Mr Low Thia Khiang: Sir, may I seek a clarification from the Minister? I would like to know whether the sale of flats to sitting tenants scheme is linked to the level of support for the PAP and the election results.

Mr Lim Hng Kiang: There is no linkage in the sale of flats to sitting tenants scheme to the level of electoral support. We encourage our tenants to buy over their flats. But at the same time, you must balance the needs of other low income families who are now on the waiting list. So, wherever possible, we can meet the demand we will sell the flats to the sitting tenants. But if we sell all the rental flats to the sitting tenants, then we will not have enough flats for future allocation to those on the waiting list. So, unfortunately, the Hougang area is a very popular area, not Hougang in his constituency, but Hougang as a general area is a very popular area. There is a long waiting list and we do not have such a big supply of rental flats compared to the central areas. 3.00 pm

Mr Low Thia Khiang: Sir, since the Minister said that he was not referring to my constituency, could the Ministry consider selling the 3-room flats in my constituency to the sitting tenants?

Mr Lim Hng Kiang: The history of HDB is that we built a lot of rental flats in the early years and most of these flats happened to be in the central areas in the older housing estates, like Queenstown, Toa Payoh, etc. Therefore, there are more rental flats in these areas to be sold to sitting tenants. By the time we moved up to Hougang area, we built very few rental flats. Therefore, there is a premium. People continue to buy rental flats in the North East zone. So we must keep a sufficient supply of rental flats to meet the demand.

Mr Low Thia Khiang: You say it is not popular in Hougang.

Mr Lim Hng Kiang: I say it is very popular.

Mr Low Thia Khiang: Not in my constituency?

Mr Lim Hng Kiang: Not in your constituency.

Mr Shriniwas Rai: Sir, town councils were introduced in order to help HDB housing estate management. It is a laudable objective, and it is still laudable. But I would like to ask the Minister to consider changing the concept of the town council into a local council where private estates as well as the Housing and Development Board estates could be managed together. We could go one step further. This town council could also manage schools as well as recreational activities in the area. At the moment, there is a clear segregation between HDB flats and private properties. It would be good national bonding and integration if both could come together. As it is, I know that some of the private residents provide membership for the town council, but that is not adequate. We should go one step further. I urge the Minister to seriously consider this. This will also lead to the growth of a civil society in Singapore and people from the private estates as well as HDB could forge together a national consciousness on issues affecting them.

Mr Lew Syn Pau: Every year, the Government has set aside a huge budget for the Main and Interim Upgrading Programmes of the HDB estates. For FY 1999 the amount is $413 million. Private housing residents are feeling a bit left out in this upgrading exercise. Many feel that they pay high taxes. Yet, when it comes to the provision of infrastructural services for private housing estates, they are asked to pay again.

Let me give Members examples of how residents feel about what the Government's role should be in this area. First is regarding the re-laying of Singapore Power gas pipes. As you know, we have been told that when the pipes reach about 25 years old, it is not safe to continue using these pipes. They have to be abandoned and new pipes have to be re-laid if the residents want to continue using town gas. Again, here, the households have been asked to pay a few thousand dollars. Otherwise, if they do not contribute their share, they would have to use bottled gas.

The next area is regarding cable TV. In many private housing estates today, they have been told that if they want to subscribe to cable TV, they are asked again to pay a few thousand dollars. For bungalows, it is as high as about $6,000. For smaller housing units, it is about $2,000 to $3,000. Here, again, the residents feel that this is really infrastructural and should be supported by the Government, if not fully, at least partially. So I hope the Minister will look again at this issue.

Mr Inderjit Singh: Sir, I have a question on the status of the upgrading of private estate policy that was announced two years ago. I would like the Minister to clarify.

Dr Ker Sin Tze: Sir, the Government announced a few years ago that they would implement an improvement scheme to upgrade private housing estates. However, no concrete plans had been implemented to-date. In comparison to HDB estates where a lot of resources have been devoted to MUP, IUP and general improvement works, private housing estates have been grossly neglected.

In the current budget, the Ministry's development budget is about $2.61 billion of which $2.26 billion, that is, about 86.3% has been allocated to public housing. Infrastructure development in HDB estate alone accounts for $113 million. In order to correct the bias and shift the emphasis to a more balanced position, improvement works in private housing estates should be carried out as soon as possible. These will include road widening, more parks and improved sewage system, etc.

Out of the many problems raised by land property owners, the cost of sharing the laying of Singapore Cable Vision cable to private housing estates is a common concern. In the case of HDB estates, the laying of SCV cable is taken as infrastructure work and the cost is subsidised by the Government. HDB residents need only to pay for internal connections within their flats. However, private landed property owners have to share the laying cost. In general, owners of terrace and semi-detached houses will have to pay about $2,000 and bungalow owners have to pay about $6,000.

During my house visit to residents in Charlton Park and Tai Keng Gardens, many residents asked whether the laying of SCV cable could be taken as infrastructure work, just like the laying of electrical cables, water and gas pipes. Although the residents are aware that SCV is a private company and so the laying of SCV cable is a private project, they take it that it is part of the Government's efforts in achieving the national objective of promoting multi-media communications in future. As such, their request is not totally without justification.

As I said earlier, the Ministry's expenditure on improvement works in HDB estates is extremely high vis-a-vis improvement expenditure in private estates. This is probably due to the limited scope of improvement works which can be carried out by the Government. For instance, the Government cannot spend money to improve any item within the boundary of a private property. If this is so, then the laying of SCV cable up to the front gate of private houses can be considered as an infrastructure improvement item, just like connecting SCV cable to HDB blocks. I would therefore urge the Minister to coordinate with the other relevant Ministries to see whether the laying of SCV cable can be taken as an infrastructure item.

The Chairman: Order. I propose to take the break now.

Thereupon Mr Speaker left the Chair of the Committee and took the Chair of the House.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.30 pm.

Sitting accordingly suspended at 3.10 pm until 3.30 pm. Sitting resumed at 3.30 pm

[Mr Speaker in the Chair]

Debate in Committee of Supply resumed.

[Mr Speaker in the Chair]

Head U (cont.) -

Mr Sinnakaruppan: Sir, my GPC colleagues have made a spirited plea for the need for upgrading of private estates. I join them to find out the status of the upgrading programme for private estates that the Minister has announced some years ago. Those of us who come from constitutencies with large numbers of private estates are consistently under pressure, particularly after the introduction of Neighbourhood Committees (NCs) where they look forward to some form of upgrading programme for them.

While I undertand that with the deficit budget, it will be very difficult to spend too much money on private estates, nevertheless, I like to urge the Minister to consider starting a pilot programme for these private estates, especially now that the costs are much lower than before. Secondly, the upgrading of private estates need not necessarily be as costly as those of the HDB estates. What is really required is a coordination of the various agencies - the PWD, the Ministry of the Environment and maybe in some cases, the Ministry of Health - to help look after the environment, coordinate certain works in the environment, and that could go a long way and, for this, the Government need not spend so much money. But, where possible, it can spend money to upgrade or introduce children's playgrounds and so on. I hope the Ministry, despite the difficult times, would consider some form of help and some form of coordination of these works so that the private estate residents would also feel just as Singaporeans as HDB residents.

Mr Chairman: We are running out of time. Can I urge Members to be brief so that we can get a reply from the Minister. Mr Rai.

Mr Shriniwas Rai: I will be brief, Sir. My other colleagues have mentioned the question of cable vision. I will not touch on it. I will just touch on the question of developing the private estates, like open drains. Mr Koo Tsai Kee was kind enough to send a note to me after the last Budget sittings. The private home owners bear a greater burden of economic sacrifice. It is inequitable, because the Government is subsidising HDB flat owners. Here, all we are asking is very minimal, like the planting of trees. I will give a case in point. At St. Michael's Road, there is a block of condominiums that has just come up. The drain has been covered, but part of it is still open. If people have to walk, they have to walk to the road and come back. For the older estates, it would be worthy of Government support and I urge the Minister to give some thought to this matter.

Mr Lew Syn Pau: There is a tendency today for many Government contracts to be tendered out in large amounts of more than $100 million. This is disadvantageous to small and medium-sized contractors who are mostly local. The big lucrative contracts tend to be won by the foreign contractors and the local contractors then become the sub-contractors. In this period of recession, there is an urgent need to assist our local indigenous contractors and help them to tide over this downturn. The Government could do this by tendering out contracts in smaller amounts without sacrificing efficiency and lower cost. I hope that the Minister will look into this with the aim of giving local contractors more opportunities to tender for Government projects.

Mr Chuang Shaw Peng: Sir, I would like to declare my interest. My first point has been covered by Mr Lew Syn Pau on chopping up the size of projects to allow more players to survive in the market. My second point is that the construction industry is currently very bad. It is compounded by the pre-qualification process put up by some Government agencies. I will quickly give two examples.

One is that the ENV Ministry has called for contractors to pre-qualify for their Deep Tunnel Sewerage System (DTSS). But it sets a requirement that interested contractors must have prior track records in this kind of work. This is the first time we are building this system. I do not see how the agency can expect local contractors to have a track record, and if none of the contractors can participate, then the nation will forever be denied of a chance in gaining the knowledge to do such work.

The second point is the pre-qualification by PSA to build an office building and the specification says that the contractors must have experience in design-and-build on office buildings and this rules out a lot of contractors because there are very few of these projects so far. But if PSA says that the contractors must have design-and-build experience and at the same time have built some office buildings somewhere before or more recently, you will still meet the requirement of getting the correct capability to build and also the correct quality. I think it is important that all these things are taken care of.

The next thing I would like to ask the Minister is: under what circumstances are the agencies allowed to recall design-and-build tenders? It is very common for a team to put up a lot of money in preparing a tender, and if a tender is called after the tender prices are published and all the designs are made public, then the party calling the tender is effectively encouraging the parties to breach intellectual copyrights. Unless the re-tender specifications are substantially changed, I urge the Minister to ensure that no design-and-build projects will be called after the tender prices are published or their designs are being made known to the public or contestants.

Dr Lee Tsao Yuan: Sir, I will take less than one minute. One of the areas most in need of regulatory review is the existing building regulations. The Building and Construction Authority will begin operation next month. I would like to propose that one of its first priorities be a comprehensive review of building regulations. There are many regulations which have been inherited from the British which are now outdated. Others should be brought up to the standard of international best practice with regard to safety standards, standardisation to achieve efficiency and use of technology.

Dr Teo Ho Pin: Sir, can I take the two cuts together?

The Chairman: Yes.

Dr Teo Ho Pin: Despite the implementation of the Construction of Quality Assessment Scheme and the Zero Construction Defects Scheme in 1991, building defects are still commonly seen in many buildings in Singapore. As reported in the Straits Times on 13th January 1996, I quote, "It is raining outside. It is leaking inside many Singapore buildings and homes." Over half of the buildings on the island leak. Building defects such as uneven floor, leaky plumbing, seeping windows and cracks have caused much inconvenience to many home owners. It has also resulted in an increase in the number of disputes among the developers, home buyers, consultants, contractors and property management organisations. Much time and resources have been wasted in resolving these disputes which could have been avoided if buildings are built to achieve a specified quality. I would like to make the following suggestions to the Ministry to consider:

a) set up a knowledge base on building defects, repair techniques and good construction practices. The Building and Construction Authority can work with our universities to spearhead research on building defects;

b) provide a defect incentive sum, about 1% of contract sum in all contracts, so that developers, consultants and contractors can use the money provided to rectify the defects. Defects could be due to poor specification by clients over design or shoddy workmanship. Any money saved from this sum could be distributed among the developers, consultants and contractors;

c) more warranty or insurance schemes should be provided to safeguard against defects, especially structural and water-proofing problems; and

d) exercise stringent control on imported materials and components. These materials must be tested in tropical climate before being implemented in buildings. Endorsement by PSB or relevant authorities will provide essential quality control.

With the implementation of ERP, it is now timely to consider the reduction of car ownership cost for both private and commercial vehicle owners. Carpark fees, especially season parking fee, can be a burden to many vehicle owners and companies. Some people own cars out of necessity while others drive their cars home to save transport cost. In the present crisis, many vehicle owners are feeling the strain to pay for parking fees both within and outside the CBD. Commercial vehicles pay a few hundred dollars monthly for season parking while HDB flat owners pay between $55 and $75. To alleviate the financial burden of vehicle owners, I would like to propose that the Ministry consider reducing season and daily carparking fees for all vehicle owners.

Mr Sinnakaruppan: Many of these management corporations of private apartments and condominiums over the years have been facing a lot of problems with the property managers they have appointed, because many of them are incompetent and they are not suitable to run this kind of estate management. The main reason is that there is no requirement for the licensing of property managers by the Commissioner of Buildings. I would like to ask the Minister whether he would consider the licensing of property managers so that management corporations can have more competent property managers.

Dr Toh See Kiat (Aljunied): I would like to refer to the painful recent episode in which two young girls died in the Pulau Ubin incident. I would like to ask for the introduction of measures to ensure safe use of our national parks. We cannot prevent all accidents but we owe it to our people to ensure that no lives are wasted when unschooled city-folks try to live in the unfamiliar wild.

The Parliamentary Secretary to the Minister for National Development (Mr Koo Tsai Kee): Sir, on behalf of the Minister, I would like to thank all the speakers for their valuable inputs. You can be assured that the Minister and I will factor your inputs into future policy considerations.

On Town Councils, I wish to thank Mr Rai. Town Councils are really new animals. They are about 10 years old. Over time, I am sure Town Councils will take on more responsibilities. On the building of a civil society, Town Councils are working with the CDCs to help mould the community together. So I am sure the aspect of community bonding will progress along quite fine.

On the improvement of private estates, I want to assure the House that the Government has not forgotten its promise made in 1997. But we are in the middle of a recession and we have to keep these items in view for a little longer. But it will be done, and it will be done well.

On the allocation of Government contracts, contrary to what Mr Chuang has said, local contractors have done very well. In fact, I have looked at the figures. Local contractors have won something like 60% or 70% of local contracts in terms of dollars and in the HDB design-and-build contracts, 23 out of 25 design-and-build contracts were awarded to local contractors. Whether we should cut down a big contract into smaller portions for local contractors to bite on is something we have to look at very carefully. There may not be economies of scale to bring a big project down to smaller projects.

On carparks, Dr Teo asked for reduction in fees. HDB has not increased HDB and URA carpark fees since 1994 except for two areas, Kampong Glam and another area. And the reason is that HDB and URA carpark fees are still very low compared to private estates. We need to increase carpark fees in the Kampong Glam area because there was a long queue for limited carparks in that area. In any case, URA fees there are much lower than the private carpark operators' fees.

On Mr Sinnakaruppan's point of licensing of property managers, legislation may not be the best way but I do encourage management corporations to seek out competent and professional managing agents. I understand that APFM has been formed and we encourage MCs to approach APFM to propose some managing agents for management corporations.

I want to thank Dr Toh for his suggestion on national parks. That was a tragic accident. We have taken note of what had happened and we will make sure that these things do not happen again, but there is no guarantee.

Mr Lew Syn Pau: I thank the Minister and the Parliamentary Secretary for their replies and seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman: Amendment No. (2), Professor Low. 3.45 pm

Assoc. Prof. Low Seow Chay: Sir I beg to move,

That the sum to be allocated to the Head U of the Main Estimates be reduced by $10 in respect to Code UF 1500.

Sir, I would like to talk about the pig transmitted disease. It was reported that there was an outbreak of this new disease known as Japanese Encephalitis (JE) disease in Malaysia. Why it concerns us is that Malaysia is one of the main sources of pork supply to Singapore. The second thing is that the pigs from Malaysia are imported live into Singapore. They then go through the auction house process before they are slaughtered in our local abattoir.

Sir, I would like to ask a few questions. First, could we ensure that the live pigs which come to Singapore for auction are 100% JE virus free? If not, what precautions do we take to ensure that the virus in the pig will not spread to our fellow Singaporeans? Third, is there any case that the Minister knows of a Singaporean who has contracted such a disease? Fourth, if we could be sure that the import of pigs are 100% infection free, should we advise Singaporeans to reduce their consumption of pork and import less pigs during this highly JE infectious period or divert our source of pig supply from other sources, which we believe it will be less likely to be affected by the virus. My last question: is pork from infected pigs safe for consumption? If it is not safe, then how could we be sure that imported frozen pork is free from the virus?

Mr Koo Tsai Kee: Sir, on behalf of the Minister, I want to assure the House and everybody in Singapore that eating pork is very safe. In fact, tomorrow, I will invite my good friend, Dr Low, to eat bak ku teh again.

The Japanese Encephalitis (JE) disease is a viral disease which is spread by mosquitoes. It is potentially fatal to humans. The disease, however, cannot be contracted through consumption of pork, provided the pork is cooked. So it is a mosquito related problem, rather than a pig related problem. Of course, the pig is the carrier.

The Primary Production Department is taking all measures to make sure that mosquito breeding in the hog auction market and the place where they load and unload pigs will be safe. So we will fog the place once a week. We have been fogging the place once a week and we have been spraying insecticide twice a day. We ensure that all the operators there will be vaccinated against JE. Again, eating pork is safe. Please carry on eating pork.

Earlier on, in my rush to answer some questions, I forgot to answer two points on building regulations and building defects. On building regulations, we are not waiting for the BCA to be formed. In fact, right now, BCD and CIDB are looking at ways to trim the regulations. CIDB has commissioned a consultant's report a few months ago to make sure that our regulatory or compliance cost is low. In areas where we can trim the regulations, we would do so. BCD is now looking at the new Building Control Act to make sure that the building regulations are in line with modern standards, and unnecessary regulations will be discarded.

I want to add that BCD has done very well, even though there is a perception out there that BCD is the depository of rules and regulations, and making construction cost high. Over the years, BCD has made sure that planning approvals have been speeded up.

On building defects, this is something that the management corporations must sort out with the developers. If we ask developers to deposit more money with the Government, then this cost will be passed on to the home buyers. It is true that the quality of construction in Singapore can improve and we will work on that. We need the help of everybody, including SCAL.

Assoc. Prof. Low Seow Chay: Sir, I beg to withdraw my amendment.

Amendment, by leave, withdrawn.

The Chairman: Amendment No. (3), Dr Wan Soon Bee.

Dr Wan Soon Bee: Sir, I beg to move,

That the sum to be allocated for Head U of the Main Estimates be reduced by $10 in respect of Code UL 3100.

Sir, Singapore is a garden city. Despite its small size, parks and gardens are provided amongst the urban developments. These green lungs are an important part of the infrastructure, so that Singaporeans as urban dwellers have somewhere to go to enjoy nature. The popularity of most of the public parks is testimony to the satisfaction of such a need. However, I have observed that the Chinese and Japanese Gardens are largely under-utilised. I believe this has to do with the entrance charges of $4.50 for adults and $2 for children. For residents in the western part of Singapore, these gardens are one of the few which they can enjoy, but having to pay an entrance fee to enjoy the parks is surely prohibitive. Can Members imagine if the East Coast Park and Pasir Ris Park also start to charge an entrance fee?

I would therefore like to suggest to the relevant authority to look into transferring the privately-run Chinese and Japanese Gardens to the National Parks Board, rather than having large and beautiful gardens open only to the paying few. Why not make it into a public park where everyone can enjoy? As it is, we are a small island state with little natural resources. A park that is under-utilised is surely a waste of limited resources.

Mr Koo Tsai Kee: Sir, I will forward the suggestion from Dr Wan to JTC because the Chinese Garden and the Japanese Garden are currently managed by the Singapore Leisure Industries Pte Ltd, which is a subsidiary of JTC. The National Parks Board manages a wide variety of public parks to meet the recreational needs of all Singaporeans. There is also a role for privately-run parks and recreational facilities like the Mandai Orchid Garden, Haw Par Villa, Japanese and Chinese Gardens. The National Parks Board cannot justify acquiring privately-run parks on the grounds of improving utilisation and giving free admission.

Dr Wan Soon Bee: Sir, in view of the answer, I have no other choice but to withdraw my amendment.

Amendment, by leave, withdrawn.

The sum of $345,406,400 for Head U ordered to stand part of the Main Estimates.

The sum of $20,451,671,100 for Head U ordered to stand part of the Development Estimates.

Head W -

The Chairman: Head W, Ministry of Trade and Industry. Amendment No. (1), Mr Leong is not here. Mr Lim Swee Say.

Mr Lim Swee Say (Tanjong Pagar): Sir, I beg to move,

That the total sum to be allocated for Head W of the Main Estimates be reduced by $100.

Sir, for Singapore's economy to remain competitive, we have decided that a knowledge economy is the way to go. What this means is that over time, we have to nurture as many knowledge-based companies as possible. The question is: what is a knowledge-based company? What kind of capabilities will be needed for the knowledge-based companies to compete, and how can we create the environment so that more of these knowledge-based companies can emerge faster and sooner in Singapore's economy?

Sir, obviously, many of us will look at a knowledge-based company differently. I would like to present one way of looking at a knowledge-based company. In the age of globalisation and technology, we will see keener competition in the market place and a faster pace of technology evolution. Knowledge-based companies must have at least two sets of capabilities, so that they will be able to cross two gates. The first gate that a knowledge-based company needs to cross is what we call the technology gate, meaning that the company must have the ability either to develop and to enhance technology, or at least to be able to access technology developed by somebody else, to be able to apply the technology, so that it can cross the technology gate. But that is not enough, because at the end of the day, you have to find customers in order to generate revenue.

In that regard, companies will have to cross a second gate known as the market gate. When we talk of the market gate, it could refer to new geographical markets or new customers in the existing market, or new customers through new channels, like Cyberspace, electronic commerce and so on. This means a knowledge-based company (KBC) must be able to know how to use the technology and how to reach out to customers. This is the first set of capabilities needed.

However, that is not good enough, because customers in the market place do not buy technology. They buy solutions, which means that the KBC must also have the capabilities to build bridges, to bridge the gap between technology gate and market gate. The first bridge that they have to build is a bridge of innovation, the ability to transform the potential in the technology into new products, new services, new applications, new processes and so on, something which the customers in the market place would find relevant and useful.

Even that is not good enough because customers do not buy ideas. They buy physical goods or services. So a KBC would have to build a second bridge known as the bridge of mass customisation, which is very different from the industrial age of mass production. Because in the case of mass production, we talk about quality, productivity. In the case of mass customisation, we talk about flexibility, adaptability and so on. These are the new capabilities that the KBC will need to build.

Sir, I would like to go further to say that even this is not good enough. Crossing the two gates and building the two bridges is not good enough, because in a knowledge-based economy, the key resource is people, knowledge workers, which means a KBC, in order to be able to get the best of knowledge workers, must have the two engines to drive its growth. The first engine is what we call organisation development. I refer to the ability to create a culture, an environment within a company so as to be able to bring the best out of each individual, not just in terms of knowledge and skills but their attitude, their innovation, their creativity and so on.

Secondly, a spirit of entrepreneurship, which means that they must be able to move fast, be able to look at opportunities and respond quickly, a kind of enterprising spirit. All in all, Sir, it is not easy to be a KBC. It must be good in technology, market, innovation, mass customisation, organisation development, and entrepreneurship.

Having said that, from a national point of view, obviously, we hope that over time, we will be able to attract enough companies to nurture these total capabilities in Singapore. This is important because if we allow the KBE to be developed in a lopsided manner, then, over time, we are going to have tremendous problems. For example, not everybody can be good in R&D. Not everybody can be good in design and so on. Therefore, what we have to do is to create opportunities in all the six areas so that every Singaporean can pursue career opportunities according to their interests and capabilities. But what we have to recognise is that, from the KBC's point of view, there is no need for them to put all these total capabilities in Singapore, because they have the option of distributing these capabilities in the region across national boundaries. Therefore, our challenge is, firstly, how can we minimise the push factor and, secondly, how can we maximise the pull factor, so that, hopefully, as many KBCs as possible will actually develop these total capabilities in Singapore.

The CSC Report is an excellent report and many issues have been addressed. This afternoon, let us look at it from the Government's angle, what Government can do to ensure this balanced development of total capability towards a KBE. I have talked about the need for the Government agencies to coordinate better so as not to promote each individual capabilities in isolation. Of course, the first step that the Government agencies have to do is not to contradict each other in their investment promotion but, more importantly, it is for them to reinforce each other, so that when the agencies talk to a company, they will be selling the company the message of total capability.

Sir, I am concerned that some companies in Singapore have the wrong impression that when we talk about knowledge-based economy, knowledge-based company, we are talking about giving up manufacturing. We are talking about going into design, into R&D only. I have heard companies telling NTUC that we are going to close down our plant in Singapore because in line with the call of the Government to move towards a knowledge-based economy, we are going to upgrade our operation into a design centre or an R&D centre. So, closing down the factory in Singapore is entirely in line with the Government's strategy. And we have to explain to them and say, "No. When we talk about KBC, we are talking about total capability." I hope the Government can do more to strengthen that message. 4.00 pm

I think a concrete thing the Government can do is to repackage all the incentive schemes to give additional incentives for companies that are able to build that total capability in Singapore. Take, for example, is it not possible for us to come up with a new incentive scheme known as a Knowledge-based Companies Incentive Scheme whereby for companies that are prepared to invest in all six capabilities in Singapore, we adopt an incentive-plus approach, that is to say, they will be able to enjoy all incentives available to anybody else but, on top of that, a premium incentive to be given to them? Is it not possible for all the economic agencies to adopt a centralised account management system to appoint one agency to be the account manager to manage all these investments as an account and to make sure that they would implement the six capabilities together? Is it not possible for the economic agency to set a target to form a knowledge-based company club in Singapore and set a target over the next two to five years and have 100, 500, or 1,000 KBCs to be based in Singapore with the total capability? Thank you, Sir.

Dr Lee Tsao Yuan: Sir, during the next three to five years of the economic recovery phase in Singapore and the region, it is important for us to monitor our business costs very carefully in order to ensure that costs do not increase at such a rate as to render doing business in Singapore uncompetitive.

During the Budget debate, I mentioned the need to systematically examine the regulatory environment to see if it contributes to cost. I would like to focus on the monitoring of business cost in this speech.

The tracking of business cost can be done at two levels. The first is direct feedback from companies. Some of this is already occurring and I am sure that MTI's statutory boards, namely, EDB, TDB and JTC, do receive real time feedback from companies. It may be timely to formalise this practice. One efficient and cost-effective way to do this is via the Internet, and for MTI and each of its statutory boards to create a dedicated e-mail address each where business people can e-mail their feedback to the Government. The second type of monitoring should be at the macro level by tracking Singapore's business cost vis-a-vis that of its competitors. In my view, there is room for improvement where our indices of cost competitiveness are concerned.

First, there is a unit business cost index of manufacturing but there is none for services. Perhaps it is time to start a unit business cost index for selected services sectors.

Second, the unit business cost index of manufacturing is based on the 1988 input structure. I am sure that the industrial structure has changed significantly over the last 10 years as to render an update timely.

The most important question, however, is which countries are Singapore's major competitors in order that we can benchmark our cost against theirs. The answer is not too obvious and varies from industry to industry. For example, Singapore's share of the electronic market in the US has dropped in recent years. But was this due to competition from the US or from companies, including US multi-nationals located in third countries, which are also selling their products in the US market? In other words, export destination may no longer be identical with the country which is the source of competition. Conversely, Singapore's relative unit labour cost in manufacturing vis-a-vis that of the other NIEs was a key indicator used in determining the extent of the total cut in wage cost needed last year. There was a time when our major competitors in manufacturing were indeed the other NIEs. But I doubt if that is true today. For example, Hong Kong has very little manufacturing left.

I therefore think it would be timely for MTI to come up with new indicators to benchmark Singapore's cost in order that we can carefully monitor our cost competitiveness in the near future.

Mr Inderjit Singh: Sir, this is not a time to slow down, but rather we should speed up the regionalisation process. In fact, to be more accurate, we should encourage going further away and encourage globalisation to diversify our risks.

Good opportunities exist in the region and around the world and Singapore companies stand a good chance of benefiting by investing before the upturn comes.

There are two possible ways in which Singapore companies can globalise. The first way is by complete replication, ie, by moving out the whole operations from Singapore resulting, of course, in the hollowing of our economy since all the value-added activities will then occur outside the country and the host country where these companies go to will benefit from our investments while Singapore loses out because of loss of investment and loss of jobs.

The second way is by breaking up the value chain of an operation and keeping some value added activities in Singapore so that this still remains a centre where funds, trade and technology flow.

One other issue is that currently offshore operations of Singapore companies cannot tap on the various incentive schemes offered to companies located here. We are talking about the 65 or so schemes that are available.

I would like to suggest a few things. First of all, can we devise new initiatives and incentives to encourage globalisation by breaking up the value chains of operations so that Singapore still remains the centre for some of its activities as opposed to encouraging complete move out of operations?

Secondly, can we allow companies that still keep part of their operations value in Singapore to be fully eligible for all the 65 incentives instead of trying to devise new schemes to help such companies?

Thirdly, provide new incentives to encourage mergers and acquisitions of viable companies in the region, since there are good opportunities like the acquisition of a Thai bank by DBS recently.

Fourthly, allow double tax deduction for costs related to globalisation. Some of these are the relocation cost of employees, cost of training of staff and the higher insurance cost of having operations overseas.

Fifthly, to encourage individuals to globalise to allow personal income tax rebates for higher cost of maintenance of children, including education and the loss of spouse's income.

I would like to once again say that we have a very valuable opportunity to extend the second wing of our economy and we should motivate more companies to do so.

Mrs Lim Hwee Hua: Sir, we all know that the domestic economy of Singapore is by comparison small. It is therefore entirely logical for companies to grow an external wing, a process which has already begun and towards facilitating this expansion, many Government agencies have provided numerous assistance schemes. The bulk of these schemes, however, centre on or favour greenfield or start-up operations.

This may not always be the ideal route, particularly at this time when opportunities may arise to acquire attractively priced and well managed businesses outside Singapore, and the window may not be open for very long. Acquisitions provide sufficient leverage and momentum to Singapore companies venturing abroad, frequently allowing an immediate penetration of other markets or securing expertise to complement operations back here.

Can the Minister provide incentives for such acquisitions including perhaps extending similar tax concession to those for new businesses or capital?

Mr Shriniwas Rai: Sir, many of the points I want to speak, Mr Inderjit Singh has already covered, but I have just one suggestion. Ministers go on official visits to many countries and I think it would be useful if the Trade Development Board works with the country whenever a Minister is visiting another country and see what are the opportunities available for us. Many people feel that we should wait. An entrepreneur should look now if there is an opportunity to go forward into the region itself. As cited by Mr Inderjit Singh, DBS is one classic example. Many people think it is not a good investment but they think in the long term. We must take a long term strategy. If I could just give an example. In India, there is a community call Marwaris who come from Rajastan. They are all over India and they are very successful. We can be Marwaris of Singapore, Sir.

Mr Simon Tay: Sir, few Singaporeans fully understand the impact the World Trade Organisation has on our economy. The World Trade regime is increasingly not only about trade. It includes and influences Singapore's domestic policies and laws on such matters as intellectual property, investment incentives, rules for industry, government procurement and the opening of financial services and other factors of our economy to foreign competition. In this, I believe Singapore has been an active participant in the WTO policy. In fact, we are perhaps among the chief proponents of free trade. Other countries, however, may have doubts, especially in this time of crisis. There are a growing rumbles of autarchy and narrow nationalism among our neighbours. There are some who wish to withdraw from the global markets and international trade. Such impulses would not be to our interest in my belief, nor are they in the long term interest of our region. There are such implications for Singapore and I would ask the Minister to comment on two areas of trade policy and the WTO.

First, Singapore should continue to play a strong role in working with our ASEAN neighbours in initiatives such as the ASEAN Free Trade Area. In doing so, we will need to make sure if regional efforts are compatible with the WTO as a form of open regionalisation rather than closed regionalisation. We should also assist our neighbours in making transitions to freer trade. This is especially so for newer ASEAN members in Indochina. In this regard, our Prime Minister made a call at the 1996 WTO Ministerial Meeting to give assistance to the least developed countries. I would ask the Minister what steps Singapore has taken in this direction and whether consistent and sufficient assistance has been given.

Second, I would ask the Minister to comment on newer issues coming into the WTO. This includes the connection between trade and the protection of the environment as well as the connection between trade and the protection of labour rights. These issues are being put on the table by many developed countries in the west, including the USA, for the new so-called millennium round of trade negotiations. Many developing countries, especially those in our region, have been sceptical about the initiatives. There are grounds, indeed, to believe that these are disguised attempts at protectionism. We should guard against such disguised protectionism. But, Sir, I ask the Minister to consider that Singapore has a good record on both the environment and on labour rights judged against many other countries. In this sense, I would agree we have to guard against protectionism. But I would ask the Minister and his Ministry not to shy away from the valid discussion of such issues. I believe that we should not be a nay sayer in the coming rounds of negotiations whose only role is to say "No". Together with others, I would encourage Singapore and the Minister to engage with Europe and the USA on these issues to develop an international approach in the WTO that is fair and agreeable to both developed and developing countries. May I ask the Minister to outline our policy in these areas for the coming rounds.

Sir, the WTO and international trade are vital to Singapore's present and future interest. The WTO is a rule-based regime that affords a degree of fairness amongst countries both big and small. I hope the Minister will elucidate our policies.

Mr Inderjit Singh: Sir, as I indicated during the Budget debate, I would like to go into some detail as to how we can promote technopreneurship in Singapore.

The 1998 World Competitiveness Yearbook ranked Singapore second after USA in terms of overall competitiveness while Taiwan ranked 16. However, if we go into the details in the area of entrepreneurship, Taiwan and Singapore switched places with Taiwan ranking number 3 while Singapore ranked number 17 and in the category of creation of companies, Taiwan ranked fourth while Singapore ranked 25th. The USA ranked 1st in this category.

My point is that we are losing the battle to be the Silicon Valley of the east and if we are serious about grooming more technopreneurs and entrepreneurs, we have to do a lot more.

Sir, I have the experience of starting up two companies in the last one year, one is a high-tech company and the other is a trading business. I have to admit that while the drive to be a technopreneur comes mostly from within you, a more conducive environment could have facilitated things and make the life of an entrepreneur less stressful. While I did not wait for things to change to get started, I am hopeful that the path for future technopreneurs would be better. In my case, after actively looking for funds in Singapore and being unsuccessful, I had to raise about 70% of the funds from my company from overseas and about 60% of them come from Taiwan. I also faced obstacles that originated from our multi-national focused economic strategies and policies that are not friendly towards local start-ups.

Given the restrictive environment here, I almost agreed to take on two opportunities, one in the USA in 1994 and another in Taiwan in 1995 to be involved in starting up high-tech companies. However, I decided to stay put in Singapore with the hope of helping to change the environment here and also try to initiate similar projects in Singapore. Also, I felt that it was my duty to stay here. However, I know of a number of cases of capable people who have left Singapore because of the restrictive environment. One is in Silicon Valley now and the other who has started up an Internet-based company in Singapore is very discouraged by the lack of support and is considering leaving for the USA. 4.15 pm

I feel that we should do a lot more to create an environment that promotes technoprenuership and entrepreneurship which our current Budget did not address, as I have said earlier. If we start to do more now, can we then achieve our objective of being the knowledge-based economy of the future and avoid losing our talented people to other countries that have more vibrant KBE industries?

Based on my experience and observations, I would like to suggest the following:

(1) We need to set up a new EDB-style organisation that has a full-time job of supporting entrepreneurs. EDB's main focus is on MNCs and lately, I believe, PLEs have been added to their list. But no one takes a focused look at start-ups.

(2) The bankruptcy laws need to be amended. I think the Minister has already addressed this and I will not touch on it.

(3) The Government sets up a high-risk fund which they are prepared to lose. Entrepreneurs can borrow from this fund or make use of this fund for their start-ups and pay back if they are successful. Even if one in 10 of such projects makes it, the net loss to such a fund can be quite minimal, because the returns from the other one out of 10 that is successful can be quite substantial.

(4) In the area of venture capitalists, I talked about the conservative nature of our VCs down here. I think we need to develop a more vibrant environment for such venture capitalists, like those that exist in the Silicon Valley in the USA and in Taiwan. I would like to suggest the following:

(a) The Government should divide their current big funds in the Government-linked VCs (like Temasek Holdings) to many smaller funds and invite private sector businessmen and entrepreneurs to manage these funds. Fund sizes could range between $30 million and $40 million. We could start a pilot project with one or two of such funds and inviting some local businessmen to take on the challenge of managing such funds.

(b) Initially, until we can develop a vibrant environment for VCs, I suggest that Government helps by providing a service to locate VCs from around the world and link them up with local entrepreneurs until a natural network of VCs can be developed down here. Basically, I am suggesting that the Government play a match-making role to link the technopreneur to the fund.

(5) Set up permanent industry groupings or committees of the various industry groups identified by the EDB in the Industry 21 Plan. Let each of these groups be under the leadership of the private sector. And each permanent grouping should have full-time staff consisting of administrative people providing administrative support as well as technical people from the industry who can come and work on a rotational basis to work on key ideas and joint projects, the results of which can be shared by the particular industry group members.

(6) I feel that we need to have a good mix of people at the policy-making level in the Government and Government agencies. We need not just academically smart people, but also street-smart people, as I have said many times. I suggest we seriously consider the selection and promotion system in the Government service to include people with good experience on the ground in the industry. One possibility is to co-opt people from industry for two to three-year term into key positions where decisions are made in supporting entrepreneurs and technopreneurs.

(7) Modify the many Government schemes that we have today which require you to spend your money upfront before you are allowed to claim the money or to be reimbursed later on. Such technological type of companies typically require a lot of cash outlay in the beginning and cash flow problem can be a big headache for entrepreneurs. So if some of these schemes can allow upfront funding, it will help us quite tremendously.

(8) Finally, we need to be very serious about promoting 'cottage industries'. The Prime Minister talked about the possibility of using HDB homes for some of these light industry types, those that use the computer, knowledge based, software development type of companies. I think we need to amend our company laws that can promote such cottage industries. If we start with cottage industries today, I think this will lead to entrepreneurs and technopreneurs emerging five to 10 years down the road.

The Chairman: Mr Shanmugam is not here. Mr Zulkifli.

Mr Zulkifli Bin Baharudin (Nominated Member): Sir, ask any successful entrepreneur today what are the problems they face when starting their business venture, you will hear a very familiar story. Among others are: (1) the lack of support and market; (2) it is expensive to start a new business in Singapore; (3) too many rules and regulations; (4) problems getting loans from local banks; (5) not many people wanting to work on new ventures or local companies; and (6) Government incentives which are generally not targeted towards new ventures like these. And most people rely on their savings or family support system to help them, and on their own, with plenty of guts and big appetite for risk-taking.

In the US, for example, there is a very strong and well-developed venture capital market. They are on the look out for good bright ideas. In fact, it is possible to make a lot of money just selling ideas in the US. Here, more often than not, it is not worth anything. In the US, there is also a very strong culture among major corporations to outsource portions of their business to their employees who then, in turn, become independent contractors or consultants, service providers to the company. This will help ease the burden of entry. These companies can then leverage on the infrastructure provided by these major corporations. In Singapore, sadly, we do not have such a culture or practice here.

While I am very happy to note that there are new initiatives being announced earlier to help, and I am referring to the Committee to promote technopreneurs and the changes in the law on bankruptcy, I would like to propose to the Minister that we set up a one-stop business centre for budding entrepreneurs to help them overcome some of these problems that we have mentioned earlier. It can be a place where they can all meet together with one another. Because for entrepreneurs like these, they need a whole host of people, network, in order to work together to synergise and compete with major corporations like GLCs or MNCs. But now they have to make multiple trips to many Government departments to get their businesses registered and going, from EDB to TDB, to PSB, and a host of many other licensing agencies, just to get their businesses going. Apart from the other legal, financial and secretarial services that are essential to start and run a business, the centre could serve as a place where they can get information and other administrative service from the Government, for example, all under one roof. They can also share cost. For example, a centre like this where they can share administrative cost of rental, which is very expensive, and other secretarial services.

In the process, I think it will help lower the start-up costs and barriers of entry for these entrepreneurs. And I hope a centre like this, if properly done, can also help symbolise the strong support and importance that Singapore gives to budding entrepreneurs.

The Chairman: Mr Leong is not here. Mr Inderjit Singh.

Mr Inderjit Singh: Sir, the strategy of bringing in foreign direct investment with a focus on big multinational companies has worked very well for Singapore in the past 30 years. But looking ahead, I believe the strategy is not going to work because the value that Singapore provided for such investors in the past can now easily be duplicated or improved upon by other countries in Asia.

As I mentioned before, in the USA, one new company is started every 3.5 seconds and again in the World Competitiveness Yearbook, ranking on Creation of Firms, USA ranked number one while Singapore ranked 25th; Taiwan was fourth.

If we set the objectives like bringing in $7-$8 billion of investments in a year, I can understand that it is very easy for the agencies who have to work on such targets to attract a few big projects, which bring in big dollar amounts and huge chunks of jobs each time. It is tougher and troublesome to attract the same dollar levels by working on, say, 10 to 20 times more of SMEs. Therefore, agencies, like EDB, prefer to focus on these big companies.

We should in the next 10 to 15 years focus on making the SMEs the cornerstone for the growth of our economy, with particular focus on KBE type of industries.

Many SMEs feel that the existing mindset among the various Government agencies is that SMEs are always asking for help. The mindset needs to change so that these agencies and the Government feel that they need SMEs' help for the economy to grow. The attitude among some agencies is also to prefer MNCs to local companies even if they bring in the same amount of investment. In fact, I have experienced this personally. I am trying to start up my company with an investment that is bigger than some of the MNCs but we face some problems and issues.

Credit squeeze is a big problem because banks continue to adopt a very conservative stance. The 65 or so incentive schemes that exist are a big help, but the ability to complete an application form for some of the SMEs is still a concern.

At this juncture, I would like to add that so far the Productivity and Standards Board (PSB) has done an excellent job in trying to meet the demands, but without additional resources, their ability to reach out to more companies is limited.

I have the following suggestions for the Ministry.

(1) Again, for SMEs to set up a focused agency to support them. The current `First Stop Centre' (not One-Stop Centre), has not been able to help effectively due to its lack of resources and established roles. In the one-stop centre, the companies that apply for help are then directed to many agencies, and in the process of going from one agency to another, they get lost and they give up trying.

(2) Perhaps we can farm out some of the activities like the processing roles for some of the incentive schemes to the various industry associations like the Singapore Confederation of Industries and the ASME (Association of Small and Medium Enterprises).

(3) Of course, the various industry associations too need to play their part in helping themselves by attracting more and bigger members to join them. Industry players need to also become more committed to work through these associations, because these are useful organisations through which they can achieve many of their objectives. Currently, the Association of Small and Medium Enterprises has only 380 members while SCI has about 1,000-plus members, whereas I believe that there are about 100,000 or so SMEs in Singapore. So I think they are not currently exactly representing all the SMEs in Singapore. I am talking about the two associations. But once this can happen, when more industry players can join these organisations and be more committed to help themselves, perhaps the Government can provide funding for these associations to play their extended roles in helping to disburse the various schemes. Furthermore, the more successful association members could be mentors for the smaller players. Once the industrialists can prove that they can be a significant force and behave as such, I am sure they will be given more attention.

(4) The LEFS scheme is great, but the interest rates are still pegged at 6.25%, which did not change despite the market interest rates coming down. Can I ask the Government if they can half this rate? Can Government agencies also be more involved in approving loans rather than depending just on banks? Despite the boost to the LEFS scheme in June last year, many companies are still facing difficulties in getting their loans approved because of the conservative nature of the banks. We may want to set up a joint body consisting of PSB and bank officers to act as loan approving bodies. Also, can the Government increase the share of risk to encourage banks to do more in lending the money?

(5) Can we extend the SDF funds for executive and managerial training so that SMEs can take advantage of this down cycle to upgrade their staff, and not just focus on the lower end employees?

Mrs Lim Hwee Hua: Sir, to the credit of EDB and PSB, many schemes have been put in place to assist SMEs. Although the intention is noble, the potential may not have been fully realised. Based on feedback gathered by the GPC, the following reasons were cited:

Firstly, as Mr Singh has touched on briefly, the application process is frequently too bureaucratic and long drawn. Many SMEs simply do not have the resources to devote solely to the application for assistance. And many fail to apply, not from want of effort or interest, but from a lack of ability to cope with the rigours of the process. This difficulty is further complicated by the relatively high turnover of public sector staff handling the applications. Towards addressing the frustration of the SMEs so described, can the Minister review the application process with the aim of making it a simple and straightforward experience? In addition, can such assistance be granted in a timely fashion?

Secondly, LEFS currently works on a fixed interest rate structure, as also referred to by Mr Singh, purportedly to provide some certainty to interest liabilities for SMEs. However, the interest rate has been fixed at a level that does not sit well with the current low interest rates. This unfortunately detracts from the benefits of LEFS. Can the Minister explain the method for determining this fixed interest rate and explore the possibility of a cheaper source of financing? Can flexibility be exercised to adjust rates to reflect more closely prevailing market trends?

Dr Wang Kai Yuen: Sir, the point that I would like to raise has been adequately covered by the speakers preceding me, Mr Inderjit Singh and Mrs Lim Hwee Hua. So I just want to join in by urging the Government to evaluate the possibility of establishing a single agency to provide greater leadership and sharper focus in our attempt to help the SMEs.

Mr Ahmad Mohd Magad (Pasir Ris): Sir, with more than 92,000 local SMEs employing 583,000 workers or 52% of the workforce, SMEs undoubtedly represent an integral part of the Singapore economy. The phenomenal changes afflicting the regional and global economy, coupled with the onset of the financial crisis in mid-1997, are having profound implications in the manner how our SMEs conduct their business.

4.30 pm

Sir, I believe the timing should be appropriate now to undertake a critical review and revamp of the SME Masterplan conceptualised about 10 years ago to accommodate the multitude of changes in the local and global business environment within which our SMEs operate. We must ensure that our SMEs are able to grow and thrive in an increasingly complex environment. Short and long term strategies need to be reviewed to ensure the survival ability at a time when we are actively pursuing a knowledge-based economy.

I suggest the incorporation of the following, among others, as and when a review of the SME Masterplan is undertaken:

(1) Create an enterprise restructuring scheme aimed at facilitating and clustering of SMEs in specific industries to make them more competitive.

(2) Promote banding together of SMEs to reduce overheads and operating cost. Such business alliances will also enable our SMEs to share knowledge, expertise and experiences and encourage resource sharing among them in the international market development efforts and venturing overseas.

(3) Expand the network of participating financial institutions (PFIs) in the LEFS scheme so that risk sharing is spread to a wider network of participants.

(4) Facilitate the matching of venture capital with promising and innovative SMEs to enable them to grow faster.

(5) Review and redesign tax laws and incentive programmes to promote and encourage foreign investments and capital infusion into our SMEs.

(6) Encourage the spirit of continuous value creation among SMEs to stay competitive in the longer term. This entails the acquisition and employment of the latest technology, equipment and information technology to enable them to effectively improve products and service quality and manage their supply change.

(7) Conduct regular training to enable our SMEs to confidently connect with the globalised world to accelerate their growth.

Mr Tay Beng Chuan: Sir, the Finance Minister in his Budget Statement said that "our approach to current economic problems is to monitor developments closely and respond with measures to maintain the competitiveness of our economy relative to our export competitors." I think this is very important and I wish to know if the Ministry intends to put in place a mechanism to monitor the impact of the cost cutting measures, gauge their effectiveness, fine-tune their implementation and ensure that the desired effect of those measures is filtered throughout all sectors of the economy.

It is quite alarming to learn that NTUC Secretary-General, Mr Lim Boon Heng, expects 1999 will see 20,000 people being retrenched. If, despite the Government's best efforts to revive the economy, jobs continue to be lost due to lack of external demand, loss of competitiveness and cash flow problems, will there be any contingency measures put in place this year to minimise unemployment?

On the part of SMEs, many of them are now doing their best to overcome the economic difficulties in a positive way. One positive finding that emerged from the pre-Budget survey on the needs of local enterprises which Singapore Chinese Chamber of Commerce and Industry conducted in February was the keen interest of SMEs to make incursions into new and emerging markets. They are keen to diversify their market base and source for new products. Obviously, the Asian economic crisis has awakened the need for SMEs in Singapore, formerly content with trading or doing businesses with a few traditional markets, to spread the net wider and broaden their markets. Indeed, many SMEs are now acutely aware that relying on a few core markets exposes themselves to undue risks.

Companies having business dealings with United States and Europe, for instance, remain largely unaffected from the financial woes. There are nascent opportunities in other emerging markets around the world which should be explored. While such opportunities are being identified through the many trade missions which the Trade Development Board intends to launch this year to such markets, such as Middle East, Mexico, Central and Eastern Europe and South Asia, we believe these may still be beyond the means of the majority of SMEs.

We would like to impress upon the Ministry the need to design a fresh set of pragmatic initiatives or schemes to facilitate SMEs in making that critical step towards new markets. Extraordinary circumstances created by this economic crisis demand creative solutions to buffer the negative effects. Some of the suggestions that our SMEs hope that the Ministry could consider implementing to facilitate their entry into ventures in the new markets include:

(1) Providing more Government subsidies for participation in international missions, fairs and exhibitions;

(2) Extending more assistance to SMEs through the overseas TDB network, like making introductions to potential business partners and helping them with the cultural and language barriers where necessary;

(3) Providing more financial and tax incentives for their overseas marketing efforts; and

(4) Implementing an export credit guarantee scheme for SMEs, similar to that extended to SMEs in South Korea.

Though there are currently a number of assistance schemes which are open to local enterprises, these schemes will benefit companies which are already well-established and have the necessary overseas connections. For instance, the Regionalisation Finance Scheme provides loans to companies for the acquisition of fixed assets overseas. This scheme would not be applicable to the trading community. Another scheme, the Business Development Scheme, apparently applies only to missions or projects undertaken on a group basis endorsed by the PSB. Although we appreciate the efforts to expand the Trade Development Incentive scheme to assist companies in setting up overseas marketing office and other business development programmes, such as branding, franchising and licensing, these schemes clearly benefit only those companies which have established their contacts abroad and are ready to venture into the next stage of business development. These preclude the SMEs which wish to explore new markets who neither possess the financial means nor the right contacts to do so.

Sir, I do hope that the blueprint for Singapore to develop world-class SMEs in the next century will scrutinise the requirements of SMEs and design pragmatic schemes to bring them into that league.

Mr Ahmad Mohd Magad: Sir, I am delighted that the Government aims to produce a pool of 100 Promising Local Enterprises (PLEs) with a turnover of $100 million each by the year 2005. But, Sir, six to seven years is a short time and therefore it requires strong effort and support from the Government to make this happen. The goal is further compounded by the fact that growth in the foreseeable two to three years is expected to be slow. Successful nurturing, such as a pool of well-managed and world-class companies with capabilities to compete globally, will contribute towards more sustainable economic growth while decreasing our dependence on multinational companies in the longer term.

Sir, it appears that there is no clear information or guideline on the criteria employed to designate and identify PLEs and I therefore assume that this is probably based on attainment of a certain level of revenue and profitability by the SMEs. While this is a good starting point, I think it is important also that the criteria be broadened to include smaller companies which demonstrate creative and innovative elements with a strong drive to succeed in their business and not just be solely driven by financial performance yardsticks. Such companies are likely to be run by technopreneurs with products featuring new technology and innovations. Not all will make it big, but if we are in earnest about promoting technopreneurship and creating a climate conducive to the sprouting of knowledge-based industries, as DPM Tony Tan has said, then the Government should exercise more flexibility in assisting and incentivising such risky ventures.

Some of the criteria I would like to suggest for technopreneur PLEs are the consideration for (1) companies staffed with resilient people with creative ideas in product design and a strong determination to succeed and make it big; (2) companies with specialised and unique core competencies and capabilities in process development, manufacturing technology or research and development; and (3) companies with dynamic and forward-looking management with very strong time-to-market orientation to react to and serve international market demands.

Can I move on to the next cut, Sir?

The Chairman: Yes.

Mr Ahmad Mohd Magad: In spite of strenuous efforts by the Government to liberalise and make the Local Enterprise Finance Scheme (LEFS) more accessible, many local SMEs feel that the eligibility criteria of the scheme are still too stringent. They felt that they are completely at the mercy of participating financial institutions (PFIs) when it comes to evaluation of their participation eligibility under the LEFS scheme. Many felt that the financial crisis has made PFIs more cautious in lending to local enterprises in spite of the extension of risk sharing to cover higher loan quantum.

Sir, I fully agree that the LEFS scheme should not support fully hopeless cases. But I am concerned about borderline but worthy cases with long term growth prospects which may be turned away for assistance and therefore become victims of the economic crisis. Their demise will also result in more job losses. I would like to suggest that an appeal channel be created for such cases, at least temporary, during the current period of recession and financial crisis. The Appeal Board should comprise members from the participating financial institutions and the Singapore Productivity and Standards Board to evaluate borderline and deserving cases for financial assistance eligibility under LEFS. The Appeal Board could possibly also play an extended and advisory role by facilitating cooperation or even mergers between SMEs or similar industries for shared resources, for synergy and for economies of scale, wherever feasible. 4.45 pm

Dr Wang Kai Yuen: Sir, I have listened with great interest the opening remarks by Mr Lim Swee Say. He defined what is a knowledge-based company. He outlined some of the criteria and, in fact, six total capabilities of a knowledge-based company. But at the end of it, I am still not very sure what is a knowledge-based company. In fact, my colleague, Mr Ahmad Magad, had already very eloquently touched upon this topic by saying that there is a lot of confusion surrounding what is a knowledge-based enterprise. In fact, most people associate it with anything to do with computers and, therefore, any products and services associated with computers are considered a knowledge-based enterprise. But how about products and services based on other fields of human endeavours? As Mr Ahmad Magad said, a knowledge-based economy is primarily about unleashing and potentially utilising knowledge locked up in people's mind. Mr Lim Swee Say also defined six criteria. So I would like to ask him whether a drug like Viagra will fulfil this definition of a product of a knowledge-based company. However we define it, if Singapore could produce a product like that, it would provide a very comfortable lifestyle for all those associated with the discovery and marketing of this particular product.

Sir, this is just one example to show that there are in fact immense potentials for breakthroughs in other fields of human endeavours like life sciences and genetics. There are already glimpses of promise of drugs and remedies for killer diseases like cancer, as well as medical problems linked to genetic defects. So when we talk about knowledge-based enterprise, knowledge-based company and knowledge-based industry, it actually covers a very wide field. My question to the Minister is whether as a nation, we are spending our scarce resource in funding R&D in the right area and whether we are enabling our companies to cross the technology gate, using Mr Lim Swee Say's term, to grow into future knowledge-based companies.

Mr Ong Kian Min (Pasir Ris): Sir, one of our key long-term focuses is developing a knowledge-based economy with an emphasis on technology-related sectors. This requires us to compete in the global arena which are seen and will, in the foreseeable future, see the most intense and rapid changes. It means competing against other economies in various parts of the world, all intent on establishing a foothold in the global technology market.

The heartbeat of technological innovation is of course research and development (R&D). And all around the world, R&D is moving at a break-neck pace. At this stage in the development of our IT industry, I feel that more should be done to get our researchers together to discuss the work they are doing, to share information and to create that buzz which our Senior Minister mentioned. Of course, confidential information cannot be divulged. But I feel that our technopreneurs may be too conservative and afraid that someone would steal their ideas if these are disclosed. From time to time, I have been referred to the web pages of some US start-up companies and was amazed by the amount of information they contain on the technology they are developing. These companies must find value in doing this, either in looking for synergetic cooperation with other companies, getting other researchers to join them to further develop the technology, raising the profile of the company, attracting venture capital funds, or simply educating the R&D community about the work they are doing.

For us, I think such a buzz may be created and promoted in several different ways. First, in having an IT or Internet resource which local innovators, R&D personnel, IT entrepreneurs can tap into to source for information particular to their industry, for example, a directory of IT resources and businesses and on-line yellow pages of sorts, with a sufficiently large database to provide a useful and efficient means to find out who are doing what. It will also serve as a one-stop website where foreigners can visit to look for Singapore products and research capabilities. We already have the Singapore InfoNet, the national website, which tells local and foreigners alike about the broad range of things happening in Singapore. How about setting up one specifically targetted for the IT industry? Thereon, there will be no reasons for researchers when they meet somebody else to say, "I did not know that you were developing this or we could have done something together."

Secondly, on-line interaction provides a means of exchange within the IT R&D circle. Even if the researchers are physically cooped up in their cubicles 20 hours a day, they can still reach out to the rest of the world on-line. However, there seems to be very few R&D discussion groups formed by local researchers and IT business people. Although there are international discussion groups, I think if our local researchers can get together for more interaction with one another on particular issues and developments relating to the local R&D scene, many more opportunities can be created among local companies to collaborate and combine complementary R&D activities and different strengths to create better products. Perhaps, the National Computer Board can host a website to encourage this.

Thirdly, the buzz can also be carried on off-line through newsletters and publications which provide regular updates on the latest developments in the local IT industry.

Fourthly, there is no substitute for physical interaction and our technopreneurs should not underestimate the importance of networking through social interaction among themselves. As many business people in all industries will testify, many valuable information is exchanged through the grapevine. In Silicon Valley, it was reported that the sharing of information is so spontaneous that two strangers, waiting in line to pay for their food in a cafeteria, can start chatting and form an alliance or joint venture even before getting to the cashier. In this area, organisations like the Singapore Science Park can play an important role by providing facilities and events to promote more social interaction for not only their tenants but non-tenants as well. This will also make our foreign researchers feel more at home while working here in Singapore.

Sir, I look forward to the day when we have a lively and buzzing R&D community.

Sir, with your permission, may I move on to the next issue about the hosting of major exhibitions and conferences in Singapore?

The Chairman: Yes.

Mr Ong Kian Min: I am very glad to see that much thinking and effort have been put in to develop the exhibition industry in Singapore. It is one of the areas in which we have good potential to grow into a regional and global hub. The tax incentives to be given to exhibition organisers who host their exhibitions in Singapore as well as the many initiatives by the Trade Development Board should give the exhibition industry a boost. We have the attraction of being relatively inexpensive compared to other international exhibition centres in Asia like Tokyo and Hong Kong, and we should continue to maintain our comparative cost advantage so that most organisers will choose to come to Singapore to put up exhibitions on a bigger scale.

At the same time, we should bear in mind that being cost-competitive alone is not enough to elevate Singapore to a regional or global hub. Top international convention centres built up their reputation over a period of time by hosting high profile exhibitions and events. During such events, plans for the whole year are set and who's who in the industry congregate. It is a must on the calendar and for leading firms and people in that particular industry, it is a once-a-year opportunity to widen one's network, in a way not possible at other events and times. Therefore, in addition to getting the quantity in numbers, we must also strive to secure one or two mega exhibitions or events to be held here annually. Indeed, even aspire to host exhibitions to the scale and prestige of the annual events like Comdex Fall in Las Vegas and even the World Economic Forum like the one in Davos.

To cater for this mega world-class events, we have to plan our infrastructure carefully. Our main exhibition venues are now at the Singapore Expo Centre in Changi, Suntec Convention Centre and the World Trade Centre. But for a truly mega event, any one of these venues, by itself, might not be sufficient and if the event has to be divided into different venues, it will cause much inconvenience and unhappiness for both exhibitors and visitors. For example, I visited last year's Comdex Fall at Las Vegas. The Singapore Pavilion was situated in the Sans Expo Centre, while Microsoft, Creative and other major attractions were at the main Las Vegas Convention Centre. People had to travel between the two venues by shuttle bus. Compare this to Milan which is able to host its annual furniture and lightings fair, spread over 26 halls, all in one cluster. Some of these halls are bigger than our Suntec Convention Centre. I hope that the Minister would consider this in the further development of our exhibition facilities.

Mr Inderjit Singh: Sir, this is a topic that I have not raised in this House before but after two years of feedback and pleas from the representatives of this sector through our GPC, I would like to channel their feedback to the Minister and I feel that they do deserve some attention.

Tourism is an important component of our economy and we should continue to promote it. The retail sector cannot depend on local consumption alone. Tourism can play a big part in helping this sector. In 1997, tourist shopping was around $2.4 billion, down by 18% from 1996 level. The key challenges are threefold:

a) how do we bring in new tourists to Singapore;

b) how to make arrived tourists stay a little longer or to keep a business visitor here for one more day for leisure; and

c) how can we bring in repeat tourists.

Cost alone is not a major factor as long as we can become a value-added destination for tourists. So, we should not give up bringing in tourists just because the cost of living in Singapore is high. We should look at Hawaii, Paris and other popular tourist destinations that still have a vibrant tourism sector despite being expensive cities. The issues and my suggestions are as follows:

We have stale and outdated theme parks like the Haw Par Villa, Tang Dynasty Village, the Malay Village and the various gardens. These, I think, are all too stale and will not be able to bring in repeat customers. I guess the only theme park that is able to do this is the Singapore Zoo. I would say that going to Sentosa once after a very long time is also sufficient. I do not see any compelling reason to go back to Sentosa after one visit. In fact, I visited Sentosa after about 7 years, and I found there was nothing really attractive to look at there. What we really need is to spend money, some development expenditure on developing world class theme parks like Universal Studios or Disneyland Park. I guess Hong Kong has beaten us to the Disney project, but we should not give up. Alternatively, we could provide attractive incentives for such companies to locate in Singapore, to also tap on the regional market as well as to keep the business travellers in Singapore - and I think the number of business travellers is quite high - for at least another day after their business has been done.

I suggest we focus on technology based theme parks that offer attractions like virtual reality where a visitor can spend the whole day in such a theme park.

Second, both India and China are two very big markets for our tourist industry. They still want to shop in Singapore and visit our places of attraction. In India alone there is a middle class population of about 200 million people capable of spending money. I am sure China has an equal, if not, a bigger number of middle class population. Can I request that the Ministry work with the Ministry of Home Affairs to ease travel restrictions for people of these countries by lifting or simplifying visa requirements for entry?

Third, double tax deductions for training expenses. Because retail and tourism industries are mainly service orientated and depend on capability of human resources, can the Government allow double tax deduction for training expenses for approved training?

Fourth, we should provide more funding to Singapore Tourism Board so that they can more aggressively market Singapore as a popular tourist destination.

Fifth, staging world class sporting activities. This is an area where we have not attempted to think big. If we treat such activities as both sporting as well as a business opportunity, we may be able to organise such activities on a different scale in order to attract tourists to Singapore.

Sixth, until we can develop world class theme parks, can tax incentives be given for current operators like Tang Village, the Chinese and Japanese Gardens and others to upgrade and to improve their facilities so that they become more attractive?

And finally, can we allow the use of satellite technology as an alternative to cable television? In this way, we will be able to provide competition for Singapore Cable Vision as many Members in this House have asked for and, at the same time, reduce the cost to individuals, hotels and organisations.

Sir, I hope the Minister will seriously look into these suggestions.

Mr Shriniwas Rai: I am interested in bringing to the Government's attention the question of culture tourism. We have the museums here and I think more and more efforts should be done to attract tourists to visit these museums. Secondly, we are a multi-racial society. We have a lot of advantages over the other countries, whether it is a Chinese opera or an Indian dance. We should try to market these values to the tourists. There is a growing number of tourists who are interested in not just seeing the sights in Singapore but also the cultural aspects of it, and we are unique in that we have the Chinese, Malay and Indian cultural heritage here. I would urge the Minister to consider ways and means of selling this to the tourists. 5.00 pm

Mr Zulkifli Bin Baharudin: Sir, although I work for an international logistics company, I wish to give my feedback to the Minister on some of the problems faced by local logistics companies. Recently, I see the Singapore Government's growing emphasis to develop Singapore as a logistics hub. And this has gained recognition amongst MNCs of the need to use Singapore as an important hub for Asia Pacific countries. It is of such strategic importance to them.

Among the MNCs, amidst the gloom of the Asian crisis, many of them are in fact growing their business by large amounts, and not necessarily for good reason. The reason is that they are taking market share from local companies. Local companies today find it hard to participate in international tenders. They do not have the infrastructure, network, the world-wide tracking systems in order to do that. The new types of businesses by computer companies requiring them to outsource and integrate various parts of their business, from vendors to suppliers to consumers within Singapore's hub, make it extremely difficult for local companies to participate, unless they synergise and set up ventures with other companies. And this is where I find that we need to do a lot more to help local companies develop. Because, otherwise, the hub will serve the major MNCs and not necessarily local companies. Major MNCs can come and go. We hope to have local companies who can stay rooted in Singapore, and thereby actually helping Singapore in the long run.

There is another aspect to this problem, Sir, and that is the problem of technology. There is this view that because we are in Singapore, because we are close to our Asian neighbours, we are relevant to our Asian neighbours. We can closely navigate the intricate channels of moving across barriers to all these countries, very difficult barriers. And the fact that we are Asians, we are seen to be better able to handle this. But technology has made this very different, because we no longer communicate through the phone and all that. Personal relationship has been replaced by more strategic relationship. Communication is through network. English becomes a more universal language in this communication. So what advantage do we have with a Thai, a Filipino, a Chinese or an Indian, when now the communication is through English. American global MNCs, for example, are better able to position themselves and take advantage of the situation. This is where our advantage and connection with the Asian countries may now become more than a myth and a reality.

If we do nothing about it, I am afraid our position as an international hub may be terribly affected. And this is especially so because a lot of the factors in developing our hub can be easily copied by other countries. As you know, they are developing their own ports, airports and infrastructure. And if you look around, some of the incentive programmes have been offered by neighbouring countries. Many Members in this House will know that some of the terms, rules and regulations and incentives offered are very familiar. It is easy to copy incentives. We can give whatever we can give. And the only hope is that we have local companies who can stay in Singapore and develop Singapore as a hub. This is where I hope the Minister will look at other incentives, beyond what have been announced in the Budget, specifically to help local companies to take advantage of these incentives.

Dr Lee Tsao Yuan: Sir, recently, in its presentation of Industry 21, EDB reiterated the goal that manufacturing and manufacturing-related services should contribute 25% to GDP. This objective has been in place for some years already. I agree with the rationale that in a sovereign state, it is desirable to have both manufacturing and services, and that both should constitute the engines of growth. For the last three years, the actual share of manufacturing has in fact been slightly lower at about 23%.

The point I would like to make is that the achievement of such a goal needs proactive policy support and policy alignment of all agencies concerned. First, there needs to be an inflow of high value added manufacturing to replace the lower value added manufacturing, which is being relocated to other more cost effective destinations. Hence Industry 21 and its focus on knowledge-driven industries.

Second, industrial land has to be priced appropriately. Even with the recent reductions in JTC and HDB rentals, industrial land is costly in Singapore. Hence, I agree with the CSC's recommendation that the pricing of industrial land needs to take into account cost competitiveness. Land Office, I believe, therefore needs to re-examine its pricing of industrial land.

Third, more can be done to maximise the usage of industrial land. JTC's Industrial Land Plan 21 is a good start, but more needs to be done. Again, the CSC Report has some concrete recommendations. One such measure is to increase the maximum allowable plot ratio in industrial estates beyond the present 2.5.

Fourth, JTC can, in formulating usage requirements, take into account the increasing integration of manufacturing production and manufacturing related services, such as design and logistics.

In conclusion, the goal that manufacturing should contribute 25% to GDP needs active policy support from all relevant Government agencies and an inter-agency approach, including EDB, JTC, Land Office and URA. I would appreciate the Minister's clarification regarding whether this is indeed the case.

Dr Lily Neo (Kreta Ayer-Tanglin): Sir, I would like to raise my concerns over the safety of consumer products in our local market. Most of us assume the constant presence of watchdog bodies that ensure products sold in Singapore would be free of toxic or harmful effects. I would like to suggest that our assumptions should be upheld and a regulatory body, either under an inter-Ministry body or MTI control, should be there to monitor all products and ascertain that they do not contain hazardous substances. This must be put in place to protect the consumers' interest. Sir, this is especially important when, in fact, the consumers are our children. Indeed, products that contain harmful substances, harmful to children, have been found in the market.

In Hong Kong last year, according to the environmental group "Greenpeace", cancer-causing toxins have been found in soft polyvinyl chloride (PVC) children's toys. The warning about this came after the group commissioned independent tests and found phthalates in 28 toys bought from seven stores in Hong Kong. Toys were not allowed to have more than 3% of phthalates. These toys included a teether, a plastic key, some dolls, and some bath toys. Young children chewing or sucking on the products could ingest the chemicals that were used to make plastic soft and flexible. Links have been established between phthalates and liver as well as kidney cancer. The chemicals can also damage reproductive organs.

I must beseech the Ministry of Trade and Industry to take necessary preventive measures to ensure that any consumer product, whether imported or locally produced, does not pose hazards to public health. Sir, whilst we do not want to over regulate and affect Singapore's pro-business environment, the Ministry of Trade and Industry must not neglect this responsibility for anything.

Dr Toh See Kiat: Sir, first, I would like to follow up on Dr Lily Neo's point about toy safety standards. In the early 70s, the Consumers Association of Singapore actually created a toys safety standards authority, which looked into issues of toy safety and toxins in toys and so on. We had to close that work because there were no funds forthcoming. And it is indeed something that we hope can change if the Ministry, for example, could grant us more money on this project. We do have a toy and product testing service currently and, again, that is very much hampered by the lack of funds. Nonetheless, we would move on that.

Sir, I would want to mention another issue which relates to consumer protection. In a Question I filed in the House for Oral Answer in November 1997, I asked the Minister whether there are plans to curb the price fixing practices of monopolies and cartels. As there was no time for an oral reply, the Minister, in his written reply, said that the Singapore economy is an open one and price fixing behaviour by cartels is best prevented by open competition in the market place. Where essentials like rice and pork are concerned, the Minister said that the Price Control Act empowers his Ministry to set prices, but added that keen competition has made this unnecessary because the Government can stay out of the market if the prices are set by market.

Sir, I take this opportunity to raise this issue again as the problem of anti-competitive practices has not been resolved satisfactorily. Anti-competitive practices were in fact the subject of a recent furore over telecommunication charges. I think last year, in a well-publicised court, there was another form of anti-competitive practice called the "recommended retail price" (RRP) practice. What happened was that a certain manufacturer sets the price of the product they made and by binding retailers to this RRP. Essentially, in this practice, retailers who dare to sell below the recommended price, even if they are able to because they have lower costs than other retailers, such retailers would be penalised. The penalty may be damages for a breach of contract or the supplier flexes his economic muscle by killing off the retailer's business, such as by stopping all supplies to this brave retailer. Since economic death is worse than damages, most of these rebellious retailers are not taken to court. They simply capitulate.

In the famous case, the retailer was too big to kill, so the matter ended up in court. Unfortunately, for the supplier in question, the court found no binding contract in existence, and so the supplier lost. In the midst of all the media hype, it escaped public notice that the supplier would actually have won if the retailer had signed a contract. This practice of fixing prices, called Resale Price Maintenance (RPM), is illegal in the UK and several other common law jurisdictions, but is well and alive and totally legal in Singapore.

Sir, after this famous case, the local supermarket scene descended into a "price war", with different supermarkets competing to sell the same goods at as low a price as they could. Ultimately, it was the consumer who benefited.

It is common knowledge that there are several cartels in Singapore which practise RPM. Some of them in fact argue that because of free competition, the prices are exactly the same. These are the petrol companies. How peculiar!

Sir, I am not against manufacturers and wholesalers recommending a retail price. In many cases, this RRP makes it easier for customers to know when his local retailer is profiteering and selling way above the market price. But RRP enforced by pain of severe penalties does not benefit the consumer. There are many business cartels in Singapore. The Price Control Act, even if the Minister is willing to apply it, does not apply to these trades.

Sir, I would plead with the Minister to make RPM an illegal practice, because consumers are suffering under prices fixed in this rigid way and it should not be allowed.

Sir, may I move on to my next cut? Twice in the last two years, in response to queries which I raised, the Ministry of Finance has assured the House that they are looking into laws to regulate the unscrupulous practices of soft commodity trading firms and timeshare companies. This is why I actually filed this cut under the Ministry of Finance earlier, but it appears that you, Sir, prefer that I say my piece to the Minister for Trade and Industry. Perhaps it was due to the impression that I will be talking about shops selling buckets. The regulation of bucket shops or soft commodity trading firms is something that is necessary.

[Mr Deputy Speaker in the Chair]

5.15 pm

Dr Toh See Kiat: These firms are called "bucket shops" primarily because of the suspicion that they take money from the public without making trades, and actually keeping the money in their tills and churn it round, paying different parties that they pick at random out of their till or "bucket".

Many of these bucket shops attract new investments by advertising for housewives, elderly retirees, students and foreign workers to apply for high paying part time jobs which require no experience and training. All these groups are vulnerable in different ways. They are inexperienced, less educated and perhaps more gullible. They are relatively hard up financially and easily enticed by high salaries and they are unable to afford lawyers to advise them or to sue if things go wrong.

Besides false job advertisements, such bucket shops also resort to lies, misleading information, hard sell and intense psychological pressure to get the job-seekers - who have entered the hyena dens - to throw in their life savings in tens of thousands of dollars. They say this is to gain "trading experience" for the new jobs. One of the key lines given by these shops to wary investors, in fact, is something that capitalises on the known fact that the MAS is a strict regulator of the financial and investment industry. They claim that they are not rogues, because if they were, the MAS would have stopped their activities. A very simple argument.

Sir, the Consumers' Association, CASE, and the Commercial Affairs Department are at their wits' end to stop such unfair traders. CASE has also been pushing for a Fair Trading Act, or at least some kind of law governing representations and sales promotion tactics, to stop these scoundrels from operating untouched by any law. Such traders give us a bad name and make a mockery of our systems of law and justice. An Act can be drafted generally enough not to cover specific commodities or investment schemes. It can also give due force of law to industry self-regulating Codes like the Singapore Code of Advertising Practice. In this way, they will be wide enough to cover the types of scams like those mentioned by Mr Sin Boon Ann yesterday in this House (the ostrich and ostrich egg schemes), timeshare schemes and soft commodity futures.

The Government has said it will introduce laws soon. Sir, will it be in this millennium?

Mr Chng Hee Kok (East Coast): Sir, I share the sentiments of Dr Toh See Kiat when he talked about the control of bucket shops. Like him, I filed this amendment under the Ministry of Finance. I begin to understand that now commodities trading is actually governed by the Trade Development Board, which is why my amendment is now being referred to this Ministry.

Sir, commodities trading, whether it is of precious metals like gold or silver or soft commodities like pork belly or soya beans, are all part and parcel of the futures trading activity. In Singapore, the trading of rubber and coffee is regulated by the Commodity Futures Act, but not other commodities like pork belly and soya beans. As a result, gazetting is not required and no licence is required to run a soft commodities trading firm. To me, this is extremely strange. As a financial centre, we would expect that these activities should be regulated under the Commodity Futures Act in total or part of the Commodity Futures Act. It is not comprehensible why these firms are allowed to operate outside the ambit of all the laws that we have in place.

Sir, one of the key features of bucket shops, besides what Dr Toh has mentioned, is that sometimes they do false trades. In other words, whatever trade is done on behalf of a client, the commodities firm actually first buys and sells it back to the client to make the money. This is how they generate a lot of trade and that is why the client always ends up to be the losing party.

As a financial centre, it is indeed strange that we today read of bucket operations still taking place in Singapore. People are still trading in soya beans and pork bellies and such things. These are losses incurred by innocent bystanders. In most cases, we may call them gullible or naive. But the fact that we allow these firms to operate in our strict environment gives these firms a sense of respectability. As a result, gullible innocent Singaporeans get trapped into it and they are still thriving. Therefore, I urge the Minister to explain why it is not in our own interest to bring all these firms under the Commodity Futures Act. Alternatively, if we cannot bring them under the Commodity Futures Act, maybe we should prohibit such activities in Singapore.

Mr Ong Kian Min: Sir, I would like to ask the Minister whether the National Computer Board or the Productivity and Standards Board could spearhead the establishment of some basic standards in e-commerce practices. There are some critical aspects of an e-commerce transaction which are often difficult or impossible for the web buyer to know, just by assessing what the vendor has presented on the web. Examples of these are whether an order has been properly transmitted and received, whether corrections can be made to the information that has been sent out, and whether electronic payment has been cleared. If, however, there is some form of certification analogous to the ISO certifications on standards and quality issued by a neutral body, this would help web surfing consumers to find reliable vendors on-line and to help reliable businesses identify themselves as such.

Sir, even hawker and food stalls have a grading system established by the Ministry of the Environment to assess their hygiene standards. The grading system does not purport to judge the quality of the food sold, but rather the hygiene standards of individual stalls. It is easily recognisable and provides real impetus for hawkers to improve the hygiene standards of their stalls.

I would like to propose that businesses on the web, which meet the basic minimum requirements, be awarded a certification seal which they can display on their web page. The seal will give an indication to the web shoppers of the type and quality of service to expect. This certification body can conduct periodical review of the technical practices of these businesses and can use exposure through on-line and off-line publications, seal withdrawal or Government referrals to impose real consequences on non-compliance with the standards established.

Dr Ho Tat Kin (Bishan-Toa Payoh): Sir, the Y2K problem has caused more than 2,500 websites to spring up, giving tips on how to cope with the millennium bug. In fact, extremes who are concerned over the potential chaos resulting from programming defect lurking in millions of computers has swelled from a weak irritation that the video recorder might not work, to panic over a doomsday scenario of riots, financial crashes and nuclear war. They believe that a computer failure will start an accidental release of radiation or a nuclear warhead will be fired by mistake. Fears over the reliability of international air travel, weapon systems failure or merely food suppliers are reflected on the Internet. It was reported that China is one of the potential areas where the Y2K problem is not adequately solved. It was also subsequently reported that the Chinese Government has ordered senior officials to take a flight on the airplanes on 31st December to prove that they have tackled the problem and it is safe to fly.

Sir, a US senate panel in a recent report cited that Japan, Mexico and Germany were nine months to two years behind schedule in their Y2K fix. An assessment by the Garner Group, a private consulting firm that helped prepare that same report, predicted a 33% chance of a major computer crash in countries such as Brazil, South Korea, Taiwan, Singapore, France and Germany.

Sir, the question I want to ask is how much of our Y2K problems have been solved. Are all the Government ministries and statutory boards already Y2K compliant? Have all the financial institutions and highly computerised organisations carried out exhaustive tests to validate their Y2K compliance? What percentage of computer installations in Singapore will still be non-Y2K compliant by the deadline? In short, Sir, how ready are we for the Y2K problem?

Mr Chuang Shaw Peng: Sir, it is an accepted fact that technology is now ruling our lives than ever before. In today's homes, office buildings, public places, we have installed more and more gadgets that use energy. Some of these gadgets are installed some years ago and they are no longer energy efficient. For example, the typical magnetic ballast used for fluorescent lights consumes 30% more energy than the latest electronic ballast. The air-conditioning system in a 10-year old building can be retrofitted with new ones that save 50% energy. Because of this development in technology, the US Federal Government in 1992 passed a law to require Federal facilities to achieve a minimum of 30% energy saving. They have achieved that and many places have actually reported 60% savings. The Berlin government subsequently also required 5,000 of their government buildings to be retrofitted with energy saving devices.

In Singapore, we do not see any concerted effort on the part of the Government to promote energy conservation. In the private sector, some developers took their own initiative to install these devices and, therefore, they reaped benefits from it. They did not even have to come up with the capital. Very often, the ones that provide the technology would pay for it first. They usually get their return on investment from a share in the energy saved. One wonders who has the technology and who can provide such retrofitting services without asking for payment.

What I have learnt is this. The companies that can provide the technology and services are just in our backyards. Some of them are already being engaged by very big utilities companies overseas but somehow they are not recognised here. Hence, if such a situation exists, should our Government or the Town Councils or the rest of the people not take this up? I therefore urge the Minister to study this and, if possible, have an energy saving campaign for the whole nation. In the short run, it can save us some money to reduce the deficit. In the long run, it will increase our competitiveness.

Mr Simon Tay: Sir, I move this amendment, not so much on energy conservation but rather on energy efficiency. The difference is that efficiency is doing more with less, whereas conservation suggests that we do nothing or do without. There is a great difference between the two terms: energy efficiency is an achievement in competitiveness. It is this change of mindset that I wish to encourage the Minister to consider fostering. Not with specific technology. It is not a question of hardware or gadgets at this stage, it is a question of mindset change in the Government, first and foremost, and then in the private sector. In the Government, when it comes to its own projects, its own buildings, and then in the Government's role as regulator and standard setter for the private sector. There are reasons of competitiveness, as I have said, to do this. There is also a coming reason in terms of international law and the climate change convention, which will eventually set the limits to how much each country can emit in terms of carbon emissions and other things that relate to energy production.

One of the primary concerns, besides the change of mindset, is the coming privatisation of Singapore Power. In privatising Singapore's power companies in future, I would ask the Minister to adopt policies that would encourage these power companies to promote efficiency rather than the sale of more power, more energy, at more costs and more profits. In this sense, Sir, I am asking the Minister to consider incentives for efficiency. I understand there is a coming inter-agency report on energy efficiency and I think in this light it would be a very important document to set about the change of mindset. 5.30 pm

Assoc. Prof. Low Seow Chay: Sir, the desalination technology development is, as what the Prime Minister mentioned in his speech to the grassroots leaders during the Chinese New Year reception, that it is a progress towards our advantage. True enough, the cost of desalination of water has fallen tremendously in the recent year. According to a recent tender called for building an operation by the State of Florida in the US, the water from the sea water reverse osmosis system was offered at a price as low as US67 cents per cubic metre, which is about S$1.17 cents per cubic metre for the next 30 years.

We could see that from this tender in the US, the cost of water production by the sea water reverse osmosis is reduced significantly. It is reduced from what people believe to be about US$1.15 cents per cubic metre to as low as US67 cents per cubic metre. From a study reported by Desalination, the water reuse magazine, in March 1998, the estimated cost of water from a multi-stage fresh desalination system, like the one that we are going to build, will be about 39% higher than the unit water cost from the reverse osmosis system.

Sir, one may like to ask why the reverse osmosis water is so cheap and yet, we are not so keen in that particular system. I think the main concern may be the quality of water because the salinity of the water product would be about 200 parts per million. Since we are self-sufficient for almost half of the water that we need, the blending of the water from the reverse osmosis with the fresh water supply would reduce the salinity of the water to an extent which is not so objectionable to our people. Based on the construction cost of less than US$5 per gallon per day, the 30 million gallons per day system we would like to build would cost around S$260 million. There will be a significant cost saving also if we consider this kind of system.

Sir, based on the significant price reduction in both the water cost per cubic metre and the construction cost of the internationally called project, we should not rule out the sea water reverse osmosis as a cost-effective alternative to desalination for Singapore. We should consider the reverse osmosis system seriously.

Dr Wang Kai Yuen: Sir, Singapore ranks sixth in the world as the most water-short country. The rate of increase in water consumption has been about 5% a year for the past decade. Today, we need 1.2 million cubic metre of water daily, about half of which comes from water catchment areas, and the rest comes from Johor. We all know that the water agreements with Johor will expire in the years 2011 and 2061 respectively. And the Government has planned to build three desalination plants, the first costing $1 billion will be built at Tuas and will produce 137,000 cubic metres a day when ready. Assoc. Prof. Low has already touched upon the various methods of desalination. I would not go into that. When all three plants are completed, the combined supply will be about 400,000 cubic metres a day.

We all agree that Singapore should treasure its supply of fresh water. The image of DPM Lee at a press conference pointing to a bottle of mineral water, stressing that we should treat our tap water as precious as that bottle of mineral water, has left a very deep impression on my mind.

However, by the same measure, I would also find it very unconscionable to use the same bottle of mineral water to flush our toilets. In fact, it would be very environmentally unfriendly when we consider that large scale desalination would consume a huge amount of energy which would in turn contribute to global warming. If we just focus on desalination as a source of fresh water, I think we have not done enough to explore the use of recycled water and sea water for flushing.

I am aware of a pilot project several years ago to use recycled water in Teban Garden for flushing. However, the residents had tremendous problems with it. My concern is that that attempt was a bit half-hearted. In my view, JTC did not do a very good job to ensure success in that pilot project, because recycled water is corrosive and metal components that could not stand the corrosion were used in that particular system. As such, I think it was very regrettable because it turned us off from the use of alternative water supply for flushing.

I came across sea water flushing in Hong Kong more than 18 years ago. I brought up the subject of sea water flushing in this House in my first term as Member of Parliament, about 14 years ago. Recently, I led a delegation of seven Parliamentarians to Hong Kong and I learned about the use of sea water for flushing.

Like Singapore, the demand for water in Hong Kong for the past 20 years up to 1990 grew by 6% a year. Their water supply problems are also largely due to no appreciable underground water; no sizable lakes or rivers; and lack of catchment areas, which are very similar to ours.

But Hong Kong has an advantage. It is part of China and the province of Guangdong is happy to supply it with water. By 1996, Guangdong provided about 720 million cubic metres of water to Hong Kong, about 70% of their total demand.

But even with such an assured water supply, Hong Kong has built a separate system to supply sea water for flushing purposes in urban areas and new towns. This system was started in the late 1950s, close to 40 years ago. Though sea water is not treated to the same standard as fresh water, it is supplied through a completely separate system through pumping system, service reservoirs and water mains, from those used for fresh water. One of the main concerns I have heard repeatedly about dual water system supply is the possibility of accidentally mis-connecting sea water supply or recycled water to fresh water. Members may be interested to learn that since its induction in Hong Kong, there was not a single incidence of mis-connection. In fact, today, over 70% of Hong Kong population are now supplied with sea water for flushing. In 1995, the average daily amount of sea water supplied was 434,000 cubic metres which is more than the combined total of all the three of our proposed desalination plants. As our average of water demand for fresh water was 2.5 million cubic metres in 1995, this means that we would have used, say, sea water like what we have used in Hong Kong, it would mean a saving of close to 14.6%. So you can look at it as a very substantial alternative supply of fresh water.

Sir, I think this is one area that we could learn something from Hong Kong and I suggest that the Government seriously look into this matter.

Dr Toh See Kiat: Sir, Mr Inderjit Singh earlier said that in seven years there have been no changes to Sentosa. I beg to disagree. There have been changes. Unfortunately, some of the changes have been for the worse.

Sir, I think tourism is a major foreign exchange earner in Singapore, and tourism has declined largely because of the economic crisis that has impacted Asia. It is all the more important for us now to concentrate on efforts to make sure that our tourist attractions are indeed drawing money for us. Sentosa is the gem in the crown jewels of Singapore, and we must pay some attention to it. In developing the attractions in Singapore, especially Sentosa, I think there are certain principles that I would like to urge the Government to consider.

First, there is a need to keep astride of international developments and trends in this area, and especially of the needs of tourists and locals, what they want to see in tourist attractions. Mr Inderjit Singh has mentioned, for example, that we have already lost out to Hong Kong in getting Disneyland which is a real big money spinner.

The second principle is that we must continually update what has become obsolete, even if they had been grand and great attractions in the past. For example, in a recent visit to Sentosa - I do visit Sentosa too - the Asian Village, for example, is dead. Practically everything is closed. And a few pitiful rides that are still functioning have got very few customers. I think some of these things need to be torn down and rebuilt.

An hon. Member: No money.

Dr Toh See Kiat: If there is no money, I think this is why the Ministry must put some grants into it.

The third principle, Sir, is that we must not turn people off. Visitors who come, especially the locals, they come for something that they want to see and enjoy and they go away with this idea that something is wrong, because it is sloppy, because it is tacky, because it is not quite tasteful. For example, I took my visitors to Sentosa. Usually when I go to Sentosa it is because I bring visitors from overseas. I went to this Merlion that they spent lots of money on. Ran up right to the top, one tiny hole, and a long queue of people waiting to see through that tiny hole. And then right at the bottom of it, there is this video show on the "Legend of the Merlion". Sir, I was amazed at the total unconvincing nature of this legend which is, of course, totally fictional, because the Merlion was invented by the Tourist Promotion Board some years ago.

Another example of sloppiness was in the sign. I saw this sign that says "To the Causeway". Of course, they were referring to the fake tower bridge that links the mainland to Sentosa. It looks like a tower bridge; it is beautiful. But it is not a causeway because from what I know, a causeway is built from the bottom of the sea up, and that is a bridge.

I think we should stay away from this "instant noodle" sort of syndrome - something picked up, put water, and viola, tourists would come. For example, the VolcanoLand is an instant noodle volcano. We do not have volcanoes in Singapore. How sad! So let us build a VolcanoLand. There is, of course, as I mentioned, the Merlion legend. If we do not have a real legend, Sir, I think we should stay away from creating totally unimaginative ones.

I was visiting China some years back and there was this official who actually talked to me about Sentosa's attractions and our tourist attractions and he said to me, "In Singapore, you have nothing to show tourists. And yet you have 7 million of them every year. In China, we have got so much to show them. I think we can beat you one day." But that was, in a sense, a backhand compliment, Sir. We have done very well to attract tourists but we must not rest on our laurels. Tourism is our life-line; we must develop Sentosa and our other attractions tastefully and sensitively.

The Minister for Trade and Industry (Mr Lee Yock Suan): Sir, I wish to thank all Members who have spoken for their views, suggestions and queries as well as their beguiling stories of Sentosa. Now that all Members have had their full say, it remains for me and my colleagues to try and answer all the queries within the next half an hour or so, plus another half an hour tomorrow.

Just a small point about the causeway to Sentosa. I was told that it is partly a causeway and a bridge. Part of it is a causeway and part of it is a bridge. So you might want to call it Causeway Bridge, if you like. But the more important point is we must take a re-look at Sentosa, and that is our intention, to try and bring in some consultants and take a re-look. This is in accordance with the recommendations of the Committee on Singapore's Competitiveness. My colleague, Mr Tang Guan Seng, will respond more fully on tourism matters.

First, I would like to touch on this issue of our economic competitiveness. Dr Lee Tsao Yuan and Mr Tay Beng Chuan have expressed the need to monitor our business costs closely and to put in place the necessary machinery to monitor the impact of the cost-cutting measures and the state of the Singapore economy.

My Ministry and the other economic agencies have established a comprehensive mechanism to do so. We rely on regular meetings with businessmen, surveys of companies, and various economic statistics such as trade and industrial production figures. This combination of on-the-ground feedback and timely hard data enables the Government to keep close tabs on the economic situation and the problems faced by businesses and Singaporeans. We will continue to explore ways to improve this. 5.45 pm

Dr Lee suggested using the Internet as one efficient and cost-effective way of obtaining public feedback. I agree with her. In fact, MTI and its statutory boards have already established links in our Internet home pages to allow members of the public to e-mail us their feedback.

Regarding Mr Tay Beng Chuan's question on further retrenchments which may arise despite the cost-cutting measures, we need to allow time for some cost-cutting measures to work their way through to the economy. Much depends on the state of the US, European and our regional economies. As a matter of fact, even in normal times when our economy was growing strongly, we were experiencing something like 9,000 to 10,000 retrenchments a year. So the figure of 20,000 should be seen in that context as we restructure our economy.

I wish to assure Members that the Government is closely monitoring the economy and will not hesitate to take additional measures if the economic situation warrants them.

Dr Lee made several suggestions to improve our indicators of cost competitiveness. My Ministry has been pursuing a constant course of refinement. For example, the Department of Statistics will be re-basing the unit business cost index of the manufacturing sector on the basis of the 1993 input/output tables which provide the latest available cost and industrial structure of the Singapore economy. This major exercise will be completed by the end of this year.

At the last Parliament sitting, Dr Lee asked for Government's response to the medium-term recommendations of the Committee on Singapore's Competitiveness (CSC). In total, the CSC made over 300 medium-term recommendations. Of these, more than 200 recommendations have either already been implemented or are in line with the work of the various Government agencies. Examples include recommendations to further develop the financial services sector and the repositioning of the Ministry of Labour.

I will now give Government's response to the remaining 100 over specific medium-term recommendations. This is shown in the handout which has already been distributed to Members. In view of the time constraint, I will just highlight a few recommendations.

On the first page, under "Building World-Class Companies", Members will see there are three recommendations. The Government has basically agreed with all of them and Temasek Holdings is actively pursuing these ideas, for example, the possibility of employing expatriate talent to head our GLCs, the possibility of a more generous use of employee stock option plans or performance-based bonuses to attract and retain talented staff and also for Temasek Holdings to take a more proactive role in developing our GLCs.

On the same page, No. 6, there is this proposal to study the tax implications of the employee stock option plan. This is something that the Ministry of Finance needs more time to look into. But it is something that the CSC has been pushing very strongly for.

On item 4, there was a proposal to set up a Ministerial Committee to oversee the development of technopreneurship. As Members know, we have already done so and there is a committee chaired by DPM Tony Tan with my colleague, BG George Yeo, as Vice-Chairman. BG George Yeo will be responding later on to all the issues concerning R&D and technopreneurship.

If Members were to look at some of the other pages, on page 4, No. 16, there is this idea that we should reduce the quantum of differential premium payable for increases in plot ratio above the alienated ratio. This is something that has been agreed to in principle and the Ministry of Law is looking into this.

On page 8, No. 34, Positioning Singapore as the Education and Inter-Regional Training Centre in Asia, again this is something that has been agreed upon and the EDB has been actively promoting the setting up of world-class institutions here by Insead and other universities.

On page 9, No. 45, to review the current concept of Free Trade Zones to allow FTZs to be designated at the company level, this is something that has to be studied.

Item No. 48, Positioning Singapore as the healthcare hub of Asia, that is a good idea and Government is actively looking into this.

On page 10, at the bottom, concerning "Tourism", there are a number of suggestions that we develop world-class tourist attractions, we set up a multi-agency committee to reposition Sentosa into a world-class attraction, and so forth. These are all the ideas which we are actively looking into.

On page 13, No. 69, the proposal to allow working from home using the Internet, that is also a good idea and I think should be actively facilitated.

On page 14, No. 74, to set up "business incubator centres" to promote new business concepts, this in fact has been done already for the technology companies.

And one last item. On page 17, No. 102, to provide additional funding for the Innovation Development Scheme administered by EDB, additional funds have in fact already been provided. Members may want to look through these recommendations at leisure.

Next, I would like to move to the issues concerning regionalisation. Several MPs have asked for further incentives to help our companies expand into the region and beyond. The Government already provides generous support in this regard. But we will see what more we can do. For example, TDB will be organising more trade missions and fairs. TDB has also increased its assistance to participants to cover 50% of common expenditure, up from 30% and for the construction of stands in trade fairs or for office rentals. TDB overseas trade offices also assist SMEs by linking them up with potential business partners. They are able to help our businessmen with local languages and customs should they encounter any problems.

Through the export factoring facility provided under the Local Enterprise Finance Scheme, local enterprises can ease their cash flow when exporting overseas. The Productivity and Standards Board (PSB) also operates the Business Connect programme to facilitate business alliances with overseas partners as well as the SG Connect Programme which provides business matchings through the Internet. EDB administers the Overseas Enterprise Incentive which exempts qualifying income from approved overseas projects for up to 10 years. There is also the Overseas Investment Incentive, as contrasted with the Overseas Enterprise Incentive. This Overseas Investment Incentive allows capital losses from approved overseas projects to be offset against taxable income in Singapore.

Mr Tay also mentioned the Regionalisation Finance Scheme which provides loans to local SMEs for the purchase of assets, such as factory and production equipment, to help them set up overseas manufacturing plants to support their operations in Singapore. The Government shares 70% of the risks and participating banks, 30%. The interest rate is 6.25% or 6.75% depending on the nature of the loan.

Companies can also apply for either the double tax deduction or the Trade Development Incentive scheme administered by TDB to help them explore new and emerging markets. The Trade Development Incentive (TDI) is a dollar-for-dollar grant scheme. Besides covering the setting up of overseas marketing offices, TDI also covers programmes such as franchising, branding and product designs. Since the financial year 1996, a total of 250 cases, amounting to $11 million, have been approved for various TDI programmes covering markets all over the world.

As Members know, EDB has just introduced a three-pronged initiative to help local companies with co-investment collaboration and consolidation. Under this initiative, a $100 million fund involving both Government and private sector participation will take short-term equity stakes in promising local enterprises to support the expansion plans of these companies. I will ask the EDB to study whether they can apply this also to PLEs which are making acquisitions overseas, as suggested by some Members.

We have already in place initiatives to encourage globalisation while enhancing Singapore's position as a centre for activities. For example, to encourage companies to use Singapore as their trading headquarters base, TDB administers the Approved International Traders and Approved Oil Traders schemes. Many companies have been attracted under these schemes to anchor their trading functions in Singapore while having overseas operations to secure the supply sources, such as the processing plants and factories in cheaper locations. This is to answer the point raised by Mr Inderjit Singh about giving incentives to the local operations whilst enabling our companies to go regional.

Next, I would like to respond to the points made by Mr Simon Tay about the WTO and what is our policy in this regard. Under the WTO's built-in agenda, members are already committed to new negotiations in agriculture and services beginning in Year 2000. The issue is therefore not whether there will be a new round but whether the negotiating agenda will be a more comprehensive one that includes issues beyond the built-in agenda, such as electronic commerce and industrial tariffs. A comprehensive new round will ensure that the interests of all the WTO members are taken into account. It will also allow for trade-offs in the different sectors and facilitate negotiations in particularly sensitive areas, such as agriculture. Singapore supports a comprehensive round.

The WTO should focus on core trade issues and not get distracted by non-trade issues relating to labour and environment. This is not because we are shying away from these issues but because they often serve as a guise for protectionism, as Mr Tay has mentioned, and we are prepared to discuss these issues, for example, in the International Labour Organisation where the labour issues properly belong.

Mr Tay asked about the help to the least developed countries. Singapore is committed to maintain tariffs at 0% for 100 products of export interests to the least developed countries. Singapore also conducts training courses to help developing countries in opening up their markets and in coping with the requirements of WTO. For example, there is a course going on right now.

Next, I will move on to the issues concerning the small and medium enterprises. Here, I would like to inform Members that PSB will be conducting a review of the SME masterplan to develop a SME 21 blueprint to position our SMEs to meet challenges of the 21st century. The study will incorporate inputs from the private sector and will be launched later this year.

PSB is the key agency tasked to develop our SMEs. This is in response to Dr Wang Kai Yuen and a few others who asked whether we should have a central agency. My own assessment is that PSB is the right body to do it and they are doing their best, of course with the help of the private sector and with contributions from everybody. Since its inception in April 1996, the PSB's First-Stop Centre has rendered assistance to over 11,000 cases in such areas as finance, operation improvements, market expansion, IT development and technology development. PSB has further simplified its application forms for SDF, LEFS and Local Enterprise Technical Assistance Scheme (LETAS). These forms should be available soon.

Mr Inderjit Singh's suggestion to farm out the processing of assistance schemes to industry bodies is already being done for LETAS and can be further extended where appropriate.

Whilst we are keen to develop our SMEs and local enterprises, I would like to reiterate that this should not reduce our efforts to continue to remain relevant to MNCs. We have had a very successful partnership with the MNCs which bring us the technology, the market expertise and this is something that we should build on. 6.00 pm

Some Members asked whether the SDF can be used for training of managers and executives. The answer is yes, if it is, for example, under the SDF's Total Company Training Plan, where executives can also be covered. SME managers also qualify for SDF support under the SME Manager Scheme, enjoying a grant level of up to 80%. This is an important area because one of the problems of the SMEs is the managerial expertise. We found, for example, that some of the companies do not place enough emphasis on financial management. They may be selling off products but they are not collecting the money back or managing their finances properly. If through our help here we can improve the level of management, I think that will be a great help.

Concerning the Promising Local Enterprises, I would like to assure Mr Ahmad Magad that we do not look only at the turnover or the size of the company. We also look at their potential, whether they have capabilities in niche areas and both the PSB, which deals with the smaller companies as well as the EDB, which deals with the larger local enterprises, are eager to help our companies to build up, to go regional and hopefully become our own MNCs.

Next, I would like to touch on issues concerning the Local Enterprise Finance Scheme (LEFS). In response to the economic crisis, the Government enhanced the LEFS scheme twice last year. The enhancements are aimed at helping more SMEs obtain short-term loans to ease their cash flow. The results show that the enhancements are practical and effective. The take-up rate for short-term loans has increased significantly. Loan approvals for working capital, for example, increased by more than ten-fold for the period April 1998 to January 1999 as compared to the same period in 1997. Similarly, factoring loans approved rose six-fold with about $200 million extended to local enterprises.

Several MPs have called for the Government to reduce the current interest rate for LEFS. Members may recall that when the prime lending rate was increased to 7.5% last year, LEFS rates were not adjusted. The current LEFS interest rates of 6.25% for short and medium-term loans and 6.75% for long-term loans are still very attractive, compared to prevailing interest rates for commercial loans to SMEs. Typically, they may have to pay something like 10% for their loans if they are able to get the money from commercial banks. So the rate of 6.25% is actually very attractive. I therefore do not propose to lower the interest rates.

The LEFS is intended to provide funds to SMEs, not to subsidise their operations through lower interest rates. In fact, as Members may be aware, Singapore is enjoying some of the lowest interest rates at the moment. The data I have here is from the Business Times On-Line. The Singapore prime rate for the average of 12 banks is 5.91%. So the rate of 6.25% is just fractionally about the prime rate. In fact, there is no way that SMEs can borrow at the prime rate or at this kind of rates from other banks. Our rates compare very favourably with rates, for example, in Taipei, 8.8%; Hong Kong, 10%; New York, 8.5%; London, 7.25%. These are all prime rates. Our rates are much lower than, say, Bangkok, 14.75%; Manila, 22.9% and Jakarta, 28%. We are higher than the rate in Tokyo which is 2.6%; Zurich, 3.25% and Frankfurt, 4.5%. Actually we are enjoying very low interest rates at the moment, reflecting the strength of our currency and the strength of our economy.

Mr Zulkifli Baharudin spoke about the logistics sector which is very important and we are putting a lot of emphasis on this area to see how we can enhance our role in this area. The strategy is to enhance our cost competitiveness and logistics capabilities through the development of integrated infrastructure and processes, grooming of world-class workforce, attracting hub projects and internationalising local companies. Besides helping local companies to grow, we need and welcome foreign participation in this industry.

The Trade Development Board is taking a two-pronged approach to grow this sector. First, to establish Singapore as a logistics hub for the region, TDB helps local and international companies to establish their foothold in the region so that they can also undertake the physical handling in these regional locations, while continuing to use Singapore as a centre for control and value-added. Secondly, to attract international distributors and procurement houses to locate in Singapore. This will enlarge the pool of cargo interest in Singapore, thereby expanding networking opportunities for locally-based logistics players.

As for incentives, this is something we have to look into. We already have the Approved International Traders and Approved Oil Traders and other schemes. We should see whether we can apply some of these to our local companies as well. I think in fact some of the local firms have already qualified, if I am not mistaken.

Next, I will comment briefly on the question of industrial land pricing. In pricing of industrial land, we have adopted a market-based approach so as to ensure efficient allocation and usage of this scarce resource. We have a policy of steady release of industrial land to allow for long-term planning by industrialists as well as to moderate land prices. For this year, we are proceeding with the industrial land sales but with a reduced quantum in view of the current situation of ample supply. JTC's posted rentals for industrial land and factories are back to levels of the early 1990s. We have also taken steps to lower annual escalation of land rentals. Wherever appropriate, industrial developments are allowed to go beyond a plot ratio of 2.5.

On the issue of subletting, JTC and HDB properties are let out to companies for them to carry out their own industrial activities. However, in view of the current economic slowdown, JTC is prepared to consider carefully, on a case-by-case basis, requests for subletting beyond the approved limits. For FY98, JTC has so far approved 379 new sublet cases that exceed the 50% space sublet limit on a temporary basis.

Recognising the increasing integration of manufacturing production and manufacturing-related services, many manufacturing-related activities such as product design and testing, software development, IT support are already allowed in normal industrial buildings.

The URA has also announced a further relaxation of allowable uses within industrial buildings. Ancillary services, including office-related activities, are now allowed to take up to 40% of the space in an industrial building. Storage can also be included as part of the predominant production space, making up the other 60%.

Finally, I just want to comment on this issue of desalination raised by Prof. Low. Before recommending the technology for our first 30 million gallons per day desalination plant, PUB's consultants had reviewed comprehensively all available technologies. For the first phase of our desalination project, it is important to use a reliable and proven desalination technology. Distillation technology is a tried and proven process for large-scale desalination plants.

Reverse Osmosis technology has potential for improvements with regard to its application in tropical waters where fouling of membranes is a key concern. In addition, the RO process requires a higher degree of pre-treatment of raw sea water. To better assess the suitability of RO for use in Singapore, a small RO plant of 1 mgd will be built as part of the first phase of our desalination project. Depending on the outcome of tests on the plant, RO will be considered for subsequent phases of the desalination project.

PUB is also keeping abreast of the latest developments in desalination technology, including the tender for the desalination plant to be built at Tampa Bay, Florida. A decision on the award of the tender is still pending since bidding closed in December 1997 due to several issues, cost being one of them. PUB will continue to monitor the latest developments in desalination technologies to assess if these can be applied in Singapore.

The Second Minister for Trade and Industry (BG George Yong-Boon Yeo): Sir, Mr Inderjit Singh, Mr Zulkifli, Dr Wang Kai Yuen and Mr Ong Kian Min spoke on the development of a knowledge economy in Singapore, especially the fostering of high-tech entrepreneurship, R&D and e-commerce. We are grateful for their detailed recommendations which MTI and MTI agencies will study and carefully consider.

One crucial area for the development of a knowledge economy is the availability of talent. And we, in Singapore, must appreciate the fact that we are not Israel, we are not a continental nation, we have a small population base, and that if we can make an achievement in this area, we need many foreigners to help us, some living overseas, some living here. Yesterday, when Dr Tan Cheng Bock said that at a time of economic crisis, we should think Singapore first, I think we must be careful at a time like this not to send wrong signals to our foreign friends and to our foreign partners.

Over the years, we welcome them. They live among us. We work in the same offices. We are neighbours. We meet in the hawker centres and restaurants. And it is crucial that while we are friends with them in good times, we remain friends with them in bad times. It is in a crisis that the true character of a person comes forth. Very often, when we assess our friends, the people whom we work with, we watch them in a crisis. Do they turn selfish and inwards? Do relationships suddenly sour, or will they continue to share and feel a sense of solidarity? Precisely, at a time like this, when we need many foreigners to help us to take our economy to the next phase, we must not send the wrong signals. Yes, in the short-term, some Singaporeans will be pleased that we are protecting them. We save them from foreign competition. But such an emotional line of attack would do great disservice to Singapore and to ourselves in the long-term.

Dr Ho Tat Kin asked about our efforts to combat the Y2K bug. He cited the Garner Group report which said that Singapore's SMEs were not very well prepared and that we have significant cross-border problems, meaning that many of our neighbours are much less prepared than we are. In fact, we have started our planning for the Y2K problem way in advance of many other countries. In November 1996, NCB launched its Y2K Conversion Campaign. And many of the larger agencies in Singapore, all the Government agencies, statutory boards, are well prepared. Our SMEs continue to be less prepared, but I think this is a world-wide problem, because the problems are of a smaller scale and sometimes it is hard for them to see how the Y2K problem affects them.

NCB has a Local Enterprise Computerisation Programme which funds up to 70% of the consultancy cost for SMEs, but not many have taken up this offer. But we have got to keep pushing, and we have got to work with our regional partners. So some of you might have read in the Straits Times yesterday that APEC is organising a conference next month which will bring together 300 experts from the region, including experts from the World Bank, OECD and the Asian Development Bank, and they will also talk about the problem of SMEs. This APEC meeting is sponsored by Canada, Japan and Singapore.

I think, on the whole, we should not be unduly alarmed. What we should do, we have done. We should not have too apocalyptic a vision of what the Y2K bug can cause. I remember one day going home, my 8-year old son asked me whether his digimon will be affected. I do not know who briefed him about the Y2K bug. But, obviously, there are a lot of misconceptions and misperceptions of what it means. So, we should not be unduly alarmed but, at the same time, we must take all precautions. Because in the nature of the problem, it is not what we are aware of which will trip us up. It is the things that we are not aware of. As the Chinese say, "bu pa yi wan, zhi pa wan yi".

We must also remember that because the entire world is focused on this problem, there will be herd effects. Mass psychology can become important. If everyone decides not to fly on 1st January or 31st December, then maybe half the world's aeroplanes will not be flying. And where will they be parked? Because, at any one time, half the world's aeroplanes are flying. In some cities, there may be a panic rush to withdraw money from banks, in which case the money supply will have to be increased. But these are problems which we should anticipate. Scenario planning, contingency planning, is being done by the various agencies, and I am glad to report that, on the whole, Singapore should be quite well prepared for the Y2K problem.

The Chairman: It is 6.15 pm.

Thereupon, Mr Deputy Speaker left the Chair of the Committee and took the Chair of the House.

Mr Lee Yock Suan: Mr Deputy Speaker, I beg to report that the Committee of Supply has made further progress on the Estimates of Expenditure for the financial year 1999/2000, and ask leave to sit again tomorrow.

Mr Deputy Speaker: So be it.