Transcript of Minister for Finance Heng Swee Keat's Speech at the REDAS Spring Festival Lunch 2019, on 19 February 2019, 12.30pm, at the Island Ballroom, Shangri-la Hotel, Singapore

President of the REDAS, Mr Chia Ngiang Hong,

REDAS Patrons Mr Kwek Leng Beng and Mr Kwee Liong Keng,

Distinguished guests,

Ladies and gentlemen

1. I am very happy to be here with you today. Thank you for inviting me to join you for this Spring Festival with REDAS. Let me first begin by wishing everyone a happy New Year. 新年快乐

2. This year is REDAS’ 60th Anniversary. You were officially founded in 1959, so that makes you part of the Merdeka Generation. Prime Minister Lee Hsien Loong has characterised the Generation as one that “faced the problems resolutely, worked with the Government, and when necessary, accepted the bitter medicine that made us strong again”. I think this applies to the real estate sector. From time to time, there have been bitter medicine, but we face the problem resolutely because we work together and we can really continue the progress. I would fully endorse Mr Chia Ngiang Hong’s statement: let’s strengthen the partnership between the Government and our business leaders and our workers. 

3. REDAS has played a very important role in our nation building journey. In fact, many of you here are responsible for making Singapore what it is today – all the nice buildings that we have today. Urban development would not have been possible without the support, capital, and expertise of private developers and companies. For example, many of our private housing, office towers, hotels, and retail developments are built by the private sector. Indeed, the shape of Singapore is really shaped by all of you. 

4. Let me touch on three points, and repeat some of my Budget Statement. The first thing I want to touch on is to think long term. All of you are very familiar about how property values are calculated. In fact, property, like all other long term capital assets, is essentially a discounted cashflow from a future stream of earnings over the lifetime of the capital. Whether it is a machine in a factory or real estate, it is the same principle of our capital raising model of discounted future cashflow. We have not been able to prevent economic cycles in the world. But I hope that we can do our best to prevent economic crises. 

5. Many of you will know that I was at the Monetary Authority of Singapore when the global financial crisis happened, and I also witnessed first-hand the Asian Financial Crisis. When you have a period of euphoria, you end up with a very hard landing that you can call a crisis. When you think about the 2008 Global Financial Crisis, it happened in the most developed economies in the world – the key players were Europe and America. And in fact, the problem originated in the subprime market in the US. So it just shows how interlinked economies and financial systems are, and that we will have to be very watchful of this global development and these interlinkages. The development of markets in Singapore, whether it is the stock markets, or property markets, is closely tied to developments in the region, particularly in Asia and the world. 

6. Yesterday, I mentioned about how the IMF-World Bank and the various economists’ projections are for Asia to remain within the strongest growing economies in the world in the next 20 years, and that the middle-class in the region will be doubled. This must mean that people would want a better quality of life – whether it is better consumption, better housing, better travel, and this must mean that over here in Singapore, we must continue to build Singapore to be an attractive city.

7. Even as we go through the economic cycles, it is very helpful for us to keep our view on the long term and how we project ourselves, how do we position ourselves for this longer term developments. There will be various key changes. These changes will go even deeper and faster. So what it means is that we will have to run a little faster. Earlier on, Mr Chia Ngiang Hong mentioned that property developers would make a bid while thinking about the long term. And indeed, it is not easy to plan for the long term because you are making a bid for a property that until you sell, it is at least a five years wait. But the buyers are not just thinking about five years, they are thinking about the long term prospect. So I think that the need to focus on the long term is going to be greater for the property sector. 

8. And when we speak about the long term, some other long term changes that I mentioned would be issues like climate change. Now climate change would cause rising sea levels. What must we do, and how do we redo our infrastructure differently? And how do we deal with sustainability? Because if climate change is going to happen, what can we as individuals, as companies, as a country do? And to work together with the global community to deal with this. This morning, I was just with the President of the University of California talking about what we can do together, that in our R&D work, we would look at climate change and sustainable development. So that’s the first theme about thinking long term.

9. The second is this: we mentioned the importance of innovation and technology, and with Industry 4.0, the fourth industrial revolution, many sectors are going to be changed by Industry 4.0. We used to talk about how your mum and pop shops are fairly immune to competition because you and I will still need to buy something from the wet markets or to the provision shops. But e-commerce is changing that significantly, and the changes in China are spectacular. 

10. Right next to my office, the Treasury, there is the Funan Digital Mall. I think it belongs to CapitaLand. The older ones among us remember it as students as the IT mall, because we buy computers from there. Today, with e-commerce, people don’t buy computers by going to the shops anymore. A lot of things are done online. So what does Funan have to change into? Every day, I see the building coming up next to my office and seeing how Funan is seeking to transform from what is an office mall into something quite different – more into an experience mall and how CapitaLand is seeking to bring in what it has learnt from its overseas projects into this one project, to look at how we transform the real estate sector.  

11. I mentioned yesterday about the construction sector using the Building Information Management system and drones. I hope that you will continue this effort – on innovation and on science and technology.

12. The third area that I would like to touch on is on partnership. Since there is so much interest on 4G, I will mention four areas that we can partner. The first is on the development of our land use system. Our first Concept Plan was put up in 1971, and in 1971, our land area was a lot smaller. Over the last 40 or 50 years, we have reclaimed more land. And our land area used to be smaller; we did not have Changi Airport at that time. Neither did we have the MRT stations. But the Concept Plan set a very important way to develop our little red dot. 

13. And I have been very surprised how, in many of my overseas trips, whenever I meet property developers and planners and architects, the one thing that they mention is how Singapore has been able to maximise this limited space to achieve maximum impact. I want to thank URA and our agencies like BCA and HDB for this long term planning that we have. I believe that in the coming years, the one thing that we cannot expand indefinitely is land space. But we can turn smallness into an advantage. Necessity is the mother of invention, and if we can turn this necessity into an invention, our developers will have a role everywhere in the world. 

14. As I have said before, everybody thinks that with IT, things can be done all over the world – anywhere around the world. And that's true. You think about the IT systems that have propelled the growth of India’s IT industry. So many things which used to be done onside can now be done offsite. Whatever it is, the interesting thing is that cities are becoming even more important as key nodes of innovation and key nodes of enterprise. There is value in how we can build this node. So first, on the partnership with our government agencies to continue to develop Singapore in the sustainable way, the green way. 

15. Now, the second area that was mentioned that is about the Industry Transformation Maps. I want to thank all of you for your active participation in the ITMs. One of the things that we are doing for the for ITM is to cluster related industries into six clusters, and one of this is the built environment cluster. The MND team has done a very good job in putting this together. To support that cluster, wearing my other hat as Chairman of the National Research Foundation, I will be looking at our investments in R&D and innovation and enterprise, urban solutions and sustainability. The more we can make full use of the space that we have will give you an advantage in the future, whether it is more green building, more sustainable building, more energy-efficient building or in the case of the users, how we integrate online and offline. Online and offline has now become a major theme in many real estate developments.

16. In the past, we talked about real estate sector and retail sector, but the fact is that now retailers have to rethink their business model. Similarly, with real estate, we have to rethink the business model and how we provide to achieve the maximum impact so that online offline can be one big value proposition which many more of our real estate players, as well as our e-commerce players, our IT players and our retailers can benefit from. So the value of urban solutions and sustainability and how we can integrate the latest technology and key partners.  

17. The third area is our overseas expansion. Now, the infrastructure needs in Asia will grow and will grow significantly and I think Singapore is well-positioned to be an Infra-Asia node. To be the node in Asia for infrastructure developments. Because, for such infrastructure development, they are so long term we need good engineers to design, good lawyers to structure the contracts, we need financiers to supply the capital for the building, and once the building is done and operational, we can turn it into an investment trust like the REITS and in this case it can be an investment trust for particular types of property. I believe that there is a lot that we can do to get there. Infrastructure Asia will be a very key part of our work in coming months and years and I hope that it will position Singapore well, and certainly our architects and our engineers and our lawyers and our real estate developers and all those working in specialised areas of construction, will find this exciting. 

18. The related area for overseas expansion is the Global Innovation Alliance that was announced at Budget last year and this year, I am glad that we now have nine nodes this Global Innovation Alliances in all the key innovation hotspots in Asia and America and Europe. 

19. Let me just share one story about the Global Innovation Alliances. in order to learn more about how others do it. I was recently in China and asked to see what is the most interesting real estate developments in China today. One of the places that they took me to was this reused warehouse that was turned into a sort of an incubator. This incubator produced over 10 unicorns managing companies, start-ups with a valuation of US$500 billion. When I went to this space, first I was surprised to see that this was a warehouse that was turned into an incubator. It didn't feel like a warehouse at all. Two, what was most important about this warehouse was not the space, but the activities in the space. How they brought together all the various people involved in innovation, in order for the start-ups to learn, in order for the successful unicorns, the owners of the unicorns to come and provide mentoring, how they draw financiers and start-ups into this space, who will then critique the projects and I met some of the companies that were there, when I look at them, I say ‘wow’. Some of them are going to be big because the value proposition is so high. 

20. So yesterday, I spoke about how we are growing the venture capital industry in Singapore, and I hope that as part of our Global Innovation Alliance, that Singapore is one of the key nodes of innovation and technology and that this will create very exciting opportunities for our entrepreneurs, for our innovators as well as for our real estate. The question is what are the most significant innovation in real estate that we can think of, where can we push the frontiers of real estate because it's no longer just about physical space, it’s about what we use that space for and how we can maximise value in that space.  

21. Years ago when I was running MAS, I visited the Bloomberg Headquarters in Europe and I met with Michael Bloomberg, so one of the interesting ways that they used space was that at one floor, it was a common space where people go for breakfast and tea and the reason is that they thought it was one of the best uses of the space was because it allows people from different parts of our organisation to interact and spin off ideas. They have all kinds of new corners that allow people to just do that. I am beginning to see that some of our Big 4 firms are looking into this, possibly as a business to advise the owners of building on how to maximize space for maximum creativity and for maximum productivity. So these are things that I believe we can work on. 

22. My fourth area is really that while real estate development is important, every one of you here must be thinking about returns and returns of capital, and as I said, I am very happy when our businesses do well. Because the better you do, I hope the more taxes you pay! When we talk about partnership, the interest of our businesses are similar to the interest of the Government. Except that in the case of the Government, we also need to take care of public interest, the interest of our workers, and the interest of the public at large, and that's why we also devote space to public spaces. It is certainly an important message that even as we develop Singapore, we must remember that this is home. And in fact this is our only home. In America if you don't like City A you can go to City B. In Singapore if you don't like Pasir Ris, you can go to Jurong, and that’s about the furthest you can go.

23. Therefore, I am very happy to hear Mr Chia Ngiang Hong talking about how we are working together with the MND agencies to look at how we can make Singapore a liveable, endearing home for all of us. On that note, this is one important thing that I hope our developers can do.

24. Happy New Year to everyone.

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