Market decides rents; but govt will step in when necessary

Singapore

THE government will continue to keep a close eye on business costs, even as it took the stance of letting market forces set the price of rentals.

Private sectors will be allowed to provide "the responses to supplying the demand", said Trade Minister Lim Hng Kiang during the Ministry of Trade and Industry's Committee of Supply debate yesterday.

But where there are possible market failures, such as when it is not commercially-viable to provide space for startups, the government will step in - and has indeed done so.

Mr Lim said JTC has set up LaunchPad@one-north in 2015 and plans to build a network of LaunchPads around Singapore, with the next one to be completed in the Jurong Innovation District this year.

"JTC has also been developing industrial facilities with shared services for SMEs (small and medium enterprises) in order to reduce their capital expenditure and operating costs in such specialised facilities," he added.

Mr Lim was responding to concerns raised by MPs on rental costs, which are a component of unit business cost (UBC).

He noted that business costs have fallen: UBC index for manufacturing sector fell 8.5 per cent from 2015 to 2016.

For the services sector, the UBC was a tad higher at 0.1 per cent year-on-year in the first three quarters of 2016, as compared to the average 0.5 per cent hike per annum of the previous four years.

Mr Lim said: "We acknowledge that for SMEs in the retail and the F&B (food and beverage) sectors, rental costs as a share of business costs is around 30 per cent and therefore significant. But for the other sectors, rental cost is not as significant."

Rental costs make up between 0.7 and 4.8 per cent of total business costs in the manufacturing sector, and constitute about 5 per cent of business costs in most services sector.

Mr Lim said the rental problem has not been so severe in the last three years as rentals across all sectors - industrial, commercial, retail and office spaces - have been declining.

As for the suggestion to reduce property tax for retail real estate, Mr Lim said this will benefit the landlords directly, not the retailers - the government cannot compel the landlords to pass on the tax savings to the tenants, as it is not operationally enforceable.

Instead, the government has other ways to support businesses, such as the Capability Development Grant (CDG), which defrays up to 70 per cent of qualifying project costs and thus encourages businesses to build business capabilities.

"This is a more sustainable way to manage business costs rather than direct intervention through rental rebates," said Mr Lim.

He also said that initiatives introduced in last year's Budget are still relevant and effective. These include the SME Working Capital Loan and Automation Support Package (ASP).

SME Working Capital Loan has catalysed over S$700 million and 4,800 loans as of Dec 31, 2016, to the benefit of about 4,300 SMEs. Under the initiative, SMEs can access unsecured working capital of up to S$300,000 to help them address cash flow concerns and growth financing needs.

The CDG and ASP schemes, which help companies achieve productivity improvements through automation, collectively supported 226 automation projects in 2016.

The government also continues to monitor the economy closely and stands ready to take decisive action if needed, said Mr Lim. For instance, the government introduced Bridging Loan for Marine & Offshore Engineering (M&OE) companies in November 2016 and enhanced the Internationalisation Finance Scheme for M&OE.

Both schemes aim to facilitate the access of these M&OE companies to working capital and financing to stabilise the sector as it copes with prolonged weaknesses in oil prices.

These support measures are expected to catalyse about S$1.6 billion in loans over one year, said Mr Lim. Applications for loans amounting to over S$90 million have been approved as of February 2017.

Pipeline demand is expected to be strong, with over 100 companies having indicated interest in the scheme.

"The access to financing will help companies finance their operations, bridge short-term cash flow gaps and take on new projects," said Mr Lim.

Stabilising the industry will preserve Singapore's core capabilities in the sector and save jobs, he added.

"With the stabilisation of oil prices, I think we are beginning to see some upstream and midstream activities taking place in the oil and gas sector.

"There is, of course, a certain amount of lag in the sector, so some of the suppliers and the stockist may not feel the impact yet," said Mr Lim.

Still, the government continues to monitor the sector closely by tracking indicators such as order books and output levels, and evaluating feedback from industry players.

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