Productivity to play role in JTC lease renewals

20131104-bt-productivity-to-play-role-in-jtc-renewals-pic Firms must submit proposal on how they intend to raise efficiency levels, set milestones

[SINGAPORE] Industrialists who want their leases at JTC-owned factories renewed will have to show that they are taking serious steps to raise productivity, said Teo Ser Luck, Minister of State for Trade and Industry.

It is an important criterion, said Mr Teo in an interview with The Business Times.

"Because moving forward, we have to maximise the value of certain space as well, and we want to strengthen SMEs, so we put in that productivity element to say that if you want to renew, no problem, but we also want you to strengthen your own business using the same space. . . We want to see you, for instance, automate certain parts so you are more productive."

The new productivity criteria will see firms submitting a proposal on how they intend to raise efficiency levels and set milestones, when they ask to renew their lease. The proposal will be reviewed by both JTC and Spring Singapore.

"We are not authoritative, we just want to see that there is substance and a proposal in terms of improving their business, improving their processes," said Mr Teo.

JTC, in response to BT's query on the productivity criteria, said that it will apply not just to lease renewals, but also to applications for industrial land.

The goal is to create a win-win situation, where land use can be intensified in space-starved Singapore, while companies can benefit by becoming more productive.

JTC "will look at the industry that the industrialist is operating in and the activities that it proposes to undertake, the value-add it would generate, the amount of investments in plant and machinery that it will put in, and the quality of the jobs that it will create", it said.

"Beyond these considerations, JTC also takes into account the companies' overall business operations and their needs. Companies are generally encouraged to constantly improve their productivity as a whole and being more productive will naturally open up more opportunities for companies. Thus, there are a range of considerations that JTC looks at."

Some concern over lease renewals surfaced in Parliament last month, when Nominated Member of Parliament Teo Siong Seng voiced the hopes of SMEs (small and medium enterprises) to get some help in renewing their land leases, and in reining in the rapid rise of rental costs.

He said that SMEs are hoping for more certainty from government agencies such as JTC and the Singapore Land Authority (SLA) on whether their leases will be renewed, as there is currently no guaranteed lease renewal for a JTC factory upon the completion of the 30-year lease.

Some industries are also unable to receive a definite answer on whether they can renew their lease for land managed by the SLA.

Responding to the comment in Parliament, Mr Teo said that JTC begins discussions with its tenants six years before their lease expires. It also gives at least three years' notice if the lease cannot be renewed.

During the interview with BT, Mr Teo added that companies which cannot get their leases renewed with JTC will not be left in the lurch.

"If you can't renew, JTC will work closely with you and try its best to assist with the transition. Nobody will take away your business from you. Nobody wants to do that. If you can still survive and sustain, why do we want to take the business away from you?"

On the issue of industrial rent, Mr Teo said that the government is keen to push out supply of space as a means to keep the pace of rent increases in check.

It has also started to roll out factories which take up less land. Earlier this year, JTC introduced the Small Footprint Standard Factory aimed at SMEs, which is three storeys high and uses a smaller footprint, with gross floor areas ranging from 700 to 1,400 square metres (7,535 to 15,069 square feet), and a plot ratio of 1.19.

Traditionally, companies are resistant to the idea of multi-storey standard factories, saying that material handling is a challenge at such spaces.

The new small footprint factories, however, have structural provisions such as bolting points and removable concrete slabs so that firms can install their own material-handling system to move goods and machinery easily.

And because they occupy a smaller plot of land, these factories can help to reduce rental costs.

Overall, Mr Teo believes that rolling out more industrial space is a better way to rein in rising rent, compared with JTC returning to its former role as an industrial landlord providing low rent - which many SMEs are hoping for.

"The thing is whether JTC, on the longer term, can continue to subsidise the industrial rent rate, because there are other operators where companies take up factory space with."

As tenants pay market rent at such privately owned factories, the efficiency of the market will be affected if the government provides subsidised rent. "That is also why, for the economy as a whole, it may not be positive for future growth," he explained.

Similarly, the government is studying ways to help SMEs cope with their commercial rent woes, but has ruled out action such as setting caps to rental increases, or rental ceilings.

"We are thinking of some programmes and schemes to see what we can do but you can't directly intervene in the market. And we should not, because this is market driven," said Mr Teo.

Whatever schemes that will be introduced will therefore "indirectly" help companies with spiralling cost, and the government is talking to developers to look at the options available, he said.

"We are working it out, we don't have anything concrete to roll out yet," said Mr Teo. "(But) I hope that we have something soon. I've got some low hanging fruits and I've got some innovative plans."

Source: Business Times, 4 Nov 2013