Saturday, 30 September 2023

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How prudent is it for SLA to take 28.6 years to recover cost spent on Minister K Shanmugam’s 26 Ridout Road property?

Singapore’s political landscape was recently rocked by allegations and subsequent investigations into the rental of colonial houses on Ridout Road by Ministers K Shanmugam and Vivian Balakrishnan.

Public outcry prompted Prime Minister Lee Hsien Loong to order comprehensive reviews by Senior Minister Teo Chee Hean and the Corrupt Practices Investigation Bureau (CPIB).

Their findings, presented to Parliament on Wednesday (28 Jun), concluded there was no evidence of corruption, abuse of power, or conflicts of interest.

The drama unfolded when Mr Kenneth Jeyaretnam, Secretary General of the Reform Party, revealed that the two ministers had rented black-and-white colonial houses along Ridout Road.

One issue that stood out the Ridoutsaga was the humongous property size of 26 Ridout Road.

The report revealed that Mr Shanmugam had negotiated with the Singapore Land Authority (SLA) via his property agent to clear adjacent land before leasing the property.

Expressing concerns about public health and safety risks due to overgrown vegetation on an adjacent slope, Mr Shanmugam offered to maintain this land at his own cost, which SLA estimated to be about S$25,000 a year.

This agreement effectively increased the size of the tenancy from 9,350 sqm to 23,164 sqm (249,294 sq ft).

It also emerged that the SLA covered initial costs of clearance, greenery replanting, and fencing to the tune of S$172,000, with the intention of recovering these costs from future rent payments.

As the house hadn’t been used since 2013, substantial repairs were required. The cost, a hefty S$515,400, was also borne by SLA. Consequently, the SLA had shelled out a total of S$687,400.

In response to queries from the Straits Times, SLA said on Thursday that such works are necessary to make properties habitable before they are tenanted.

It also gave examples of similar works done on other black-and-white bungalows in Malcolm Road and Orange Grove Road.

These properties ranged in size from 480.2 sq m to 742 sq m, and the works had cost between S$408,800 and S$1,132,800.

SLA noted that these works included similar repairs as well as asbestos removal and structural repairs in some cases. It said that the valuation of such properties would have factored in the condition of the bungalows after the works were done.

In addition, a cost-benefit analysis is also undertaken to ensure that the rental received for the properties would more than justify the works over the expected period of use, which can be ten years or more, it added.

Now, with that in mind, the point of contention lies in the sequence of events leading up to the rental of the property.

The CPIB corrected an earlier statement by SLA, confirming that the Minister had paid the guide rent of S$26,500. This is because SLA had assessed the Guide Rent to be $24,500.

SLA’s rationale was that on top of the S$24,500, it intended to charge the tenant another S$2,000 to recover the amortised cost of works to clear and incorporate the additional land. This would bring the total minimum rental to the correct value of S$26,500.

The S$2,000 cost recovery equates to a 28.6-year amortisation period, a seemingly long duration to recover the initial investment, especially when we compare it with SLA’s statement that the rental received for the properties would more than justify the works over the expected period of use, which can be ten years.

Adding to the perplexity is the fact that the Minister’s lease period is nine years (3+3+3). If the property is vacated post this period, the SLA stands to lose the significant investments made in refurbishments and site clearance.

Could a prudent fiscal move not have been to include the recovery cost within the 9-year tenancy period, thus increasing the rent by S$6,364 instead of S$2,000?

Moreover, the decision to refurbish before establishing the rental agreement is questionable. Typically, a property is renovated before setting the rent to reflect its improved state. The guide rent of S$24,500, it seems, was based on the property’s pre-refurbished condition.

The condition of the property at 26 Ridout would have explained why no one bid for the property in the first place.

Had SLA renovated the property before tendering it out to the public, it surely would have garnered some attention from interested tenants instead of putting them off with the state the property was in.

Equally puzzling is the decision not to revise the guide rent after the property size was more than doubled. From a business perspective, this seems nonsensical.

The same applies to 31 Ridout Road, occupied by Dr Balakrishnan, where SLA spent S$570,500 on property restoration. However, the report did not specify whether the refurbishment occurred before or after the rental was confirmed, nor did the SLA state how much it intends to recover from the restoration costs. The cost of clearing the greenery was also not included.

Although SLA has provided examples where it spent over half a million to restore a property under its care, it has not clarified if it had done any of such works before after a tenant has successfully tendered for the estate.

Finally, there is the issue of possible conflict of interest. When a minister, even after recusing himself, negotiates with an agency under his ministry, it can create perceptions of impropriety.

This runs against the spirit of the Ministers’ Code of Conduct, introduced in 1954, which mandates that “a minister must scrupulously avoid any actual or apparent conflict of interest between his official responsibilities and his private financial interests”.

While the ministers may have been cleared of untoward allegations by the report chaired by the same minister who approved Mr Shanmugam’s rental and the CPIB office that is under PM Lee, several questions remain unanswered.

The forthcoming parliamentary session next week, where these issues will be addressed, is keenly awaited as the public eagerly anticipates the ministers’ responses.

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