Minister Lim's reply to Parliament Questions on Singapore Economy

Question No. 325, 326 of Notice paper No. 198 of 2007, Question No. 332 of Notice Paper No. 200 of 2007 and Question No. 350 of Notice Paper No. 212 of 2007

For Oral Answer

Question No. 325 in Notice paper No. 198 of 2007

Name and Constituency of Member of Parliament
Mrs Josephine Teo, Member for Bishan-Toa Payoh GRC

Question
To ask the Minister for Trade and Industry (a) if there are signs of the economy overheating; and (b) apart from unexpected external shocks, what factors can limit the growth of the economy in the next 3 years.

 Question No. 326 in Notice Paper No. 198 of 2007

Name and Constituency of Member of Parliament

Dr Muhammad Faishal Ibrahim, Member for Marine Parade GRC

Question
To ask the Minister for Trade and Industry what are the effects of rising prices and property rentals on the competitiveness of Singapore in attracting foreign direct investments and as a place to live, work and play.

Question No. 332 in Notice Paper No. 200 of 2007

Name and Constituency of Member of Parliament

Mr Liang Eng Hwa, Member for Holland-Bukit Timah GRC

Question

To ask the Minister for Trade and Industry (a) whether there is a risk of overheating in the Singapore economy; and (b) whether the recent price, rental and wage increases, coupled with our strong Singapore dollar, will impact our export competitiveness relative to our regional competitors.

Question No. 350 in Notice Paper No. 212 of 2007

Name and Constituency of Member of Parliament
Mdm Halimah Yacob, Member for Jurong GRC

Question
To ask the Minister for Trade and Industry (a) whether he can give an assessment on the impact of the rising cost of commercial and residential properties on the cost of doing business in Singapore; (b) whether this situation has eroded Singapore’s competitiveness; and (c) what measures the Government intends to put in place to ensure that the overall cost of doing business, not just labor cost, remains competitive.

Answer
Members have asked about the impact of rising costs on Singapore’s competitiveness.

The current cost pressures are reflective of our competitiveness and resultant strong economic growth. The economy has grown at above 6% for the past 3 years, and is projected to grow by 7-8% for the current year. In addition, growth is broad-based across both the manufacturing and services sectors. As a result of continued efforts in restructuring, we are also well-positioned to ride on the new growth trends and favorable economic conditions ahead.

Despite our sustained strong growth in the recent years, we have been operating in an overall low-inflation environment. In the past 3 years, our Consumer Price Index increased at an average annual rate of 1.0% while Overall Unit Labor Cost declined at an annual average rate of 2.2%. However, in recent quarters, we have seen increases in property prices and rentals, as well as wages. We have to maintain vigilance over our costs, as excessive cost increases would dampen our growth prospects.

We have taken a proactive approach so far. To address immediate space constraints, we have introduced some interim office space supply, and HDB flats for rent. MND has also released additional information on property prices and rents to allow the public and businesses to make more informed decisions on property purchases or rentals. This will increase awareness that attractive housing options remain available for foreign talent beyond the central districts. For longer-term demand, MND has been putting out ample supply of land, with more than 42,000 private residential units and 640,000 sqm of office space to be completed by 2010[1].

On the manpower front, with a near full employment trend, we are looking into ways to help more Singaporeans, such as older workers and women, take advantage of the strong employment market and rejoin the workforce. Reskilling efforts will also continue to allow Singaporeans to obtain better-paying jobs, while we supplement our workforce with foreign workers. Our focus is to create better jobs for Singaporeans and better opportunities to attract global talent.

Even as we take concrete steps to alleviate short term tightness in the resource markets, we should distinguish facts from impressions given by media reports of sky-high rentals in selected locations or transactions. For instance, the median prime[2]office rent in 2Q07 was $9.50 per square foot per month (psf pm). However, median rent in other locations, which account for about 80% of office space in Singapore, was less than half that, at $4.50 psf pm. Similarly, residential rents are also highly location dependent. In 2Q07, the median rents in 156 private condominium developments across the country published by URA ranged from $1.40 psf pm to $6.30 psf pm. In this regard, MND’s recent release of additional information on property prices and rents will facilitate more informed decisions on property purchases or rentals.

Overall Unit Labor Cost has increased by 5.8% year-on-year in the first half of 2007, although it is still at a level which is 13% lower than 2001. Similarly, Unit Business Cost for Manufacturing has increased by 2.6% year-on-year in the first half of 2007, but remains at a level which is 11% lower than in 2001.

Singapore remains cheaper compared to other global cities in the region. According to ECA International’s[3] comparison of 2006 monthly rentals for 3-bedroom apartments in areas equivalent to Singapore’s districts 9, 10, 11 and East Coast, Singapore’s rental was less than half that of Hong Kong and Tokyo[4]. In a comparison of global office market rentals by CB Richard Ellis in May 07, Singapore’s office rental was found to be 30% lower than that of Hong Kong and 50-60% lower than that of Tokyo.

More importantly, competitiveness is more than offering lower costs alone. It is about value creation. London, Tokyo and New York are high cost locations, but they are thriving global hubs because they offer good value for businesses. Singapore has many attributes that enhance our value proposition to investors, which are not easily replicated by other regional cities. We have a pool of highly skilled talents that enable us to engage in high value add activities. We are renowned for our livability, clean environment, security, and increasingly, vibrancy as well. In June this year, Monocle (European lifestyle magazine) rated Singapore as the most livable city in Asia outside Japan, and cited Singapore as being “extremely affordable” despite our “first world living standards”.

Despite increased costs, the World Competitiveness Yearbook ranked Singapore as the second-most competitive economy overall among 55 countries, second only to the US, in May this year. Beyond the multi-billion investment projects such as the two integrated resorts that are being developed, our project pipelines for 2007 remain strong. For example, Mitsui Chemicals has recently announced that it will invest $240 million to expand its elastomer plant in Singapore. Qimonda will be building its first fully-owned 300mm wafer fabrication facility in Singapore, and estimates that it will invest approximately $4 billion over the next 5 years. Singapore’s tourism industry also hit record highs in the first half of 2007, achieving an estimated $6.4 billion in tourism receipts and welcoming 4.9 million visitor arrivals. These suggest that Singapore is still an attractive location for economic activities for investors, talents and tourists.

Having said this, we cannot afford to be complacent. The Government will continue to keep a tight watch on business costs and most importantly strengthen our competitive advantage and value creation to investors, for Singapore to remain on its growth path.

[1]Source: MND 2H2007 GLS Press Release 14 Jun 2007

[2]This refers to URA’s “Category 1” office space, comprising office space in buildings located in the Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, have large floor plate size and gross floor area.

[3]ECA International is a provider of HR solutions. It is the world’s largest membership organization for international human resources, serving a global network of over 4000 HR professionals in 71 countries.

[4]Straits Times 29, 30 July 2007