Ministerial Statement on the Rentals of State Properties by Second Minister for Law Mr Edwin Tong SC

03 July 2023 Posted in Parliamentary speeches and responses

A. INTRODUCTION

1. Mr Deputy Speaker,

(1) I will respond to the remaining questions by Members relating to the rentals of black and white bungalows (Black and Whites) managed by the Singapore Land Authority (SLA).

(2) Specifically, I will address Members’ questions raised in relation to SLA’s management of Black and Whites.

(3) And I will refer to the various Parliamentary Questions which I will address in the course of this speech.

2. Sir, the main issues raised in these remaining PQs are as follows:

(1) First, what is SLA’s policy mandate and objectives in managing State properties, including Black and Whites?  Why do we continue to maintain such a portfolio of older, historical properties, and what is SLA’s management strategy for such properties?

(2) Specifically, what is the process by which residential Black and Whites are leased out?

(3) And finally, whether, in the case of No. 26 and 31 Ridout Road, SLA took any unusual steps or measures that deviated from its usual process?

3. On this last point, the short answer is that SLA complied with all its procedures and requirements in these transactions:

(1) SLA adhered to its internal processes, guidelines and requirements in leasing both properties.

(2) The properties were rented at market value, determined by an independent team of valuers who, as you heard from the Senior Minister earlier, were not aware of the identities of the prospective tenants at the time of the transaction.

(3) SLA acted properly:

• It sought at all times to achieve a commercially viable outcome.
• Which would secure its interests, as Landlord, and also as manager of the State properties.
• In addition, Minister Shanmugam recused himself, as Minister for Law, from any decisions and discussions related to the issue of his own tenancy, should any matter arise.

4. This is validated by the findings of the independent review conducted by Senior Minister and Coordinating Minister for National Security, Mr Teo Chee Hean, which you heard earlier, and the investigation by the Corrupt Practices Investigation Bureau (CPIB).  Members would have heard SM’s speech in this House.

5. These conclusions were reached after a rigorous investigation by CPIB, which also inquired into SLA’s conduct as the landlord:

(1) Numerous SLA officers, both former and current, as well as SLA’s property and managing agents, were interviewed by CPIB officers, some of them on multiple occasions.

(2) SLA’s processes were closely reviewed, including through the requisition of contemporaneous documents ranging from emails, the leasing documents and approval chain, to messages on private messaging applications.

(3) Following this investigation, CPIB found that the rules were applied fairly for both rental transactions.  It was established that:

• There was no evidence of corruption or wrongdoing in the two rental transactions of the Ridout Road State properties.
• The Direct Tenancy rules were applied fairly for both rental transactions.  There was no corrupt intent on the part of any person, or any inducement given to any individual involved in the processing of rentals.
• No preferential treatment was given to the Ministers and their spouses.
• There was no disclosure of privileged information in the process.
• There was also no evidence to suggest any abuse of position by the Ministers for personal gain.

6. Sir, to address the remaining PQs, I will organise my speech as follows:

(1) First, I will set out the contextual background against which Members’ questions arise:

• Starting with a brief outline of the nature of Black and Whites.
• And explain the value which they have in Singapore as heritage properties, having historical and architectural significance.
• I will then set out SLA’s management strategy concerning these older, heritage properties, including Black and Whites.

(2) Next, I will outline SLA’s management approach to these properties, covering the questions of:

• Marketing;
• Valuation; and
• Leasing

Which members have raised.   

It would also be useful, as we deal with these commercial questions, to have regard to the state of the residential rental market at the relevant time, a question which Mr Don Wee had posed.

(3) Finally, I will deal with some specific queries raised in relation to:

• The two leases, for 26 and 31 Ridout Road.
• And also address SLA’s approach in undertaking these transactions.

B. SLA’S MANAGEMENT OF BLACK AND WHITE

SLA’s role in management of State properties

7. Mr Leong Mun Wai, Mr Don Wee, Mr Gerald Giam and Ms He Ting Ru have asked about SLA’s management of Black and Whites, including its plans for such Black and Whites and the context in which they are maintained, including broader development plans.

8. Let me start with some background.

9. SLA is the custodian of State land and property:

(1) One of its key roles is to optimise land resources for Singapore’s economic and social development.

(2) SLA oversees the management of about 2,600 State properties in total.

(3) These include landed and non-landed residential properties, former schools, former army camps and shophouses, for example.

(4) Within this portfolio of properties are older, heritage bungalows, and this includes the Black and Whites.

(5) Some Black and Whites are also gazetted as conservation properties under the Planning Act, and consequently, carry the obligations which are imposed on conservation properties.  There are other properties which are accorded “protected” status, whilst they are evaluated for conservation.

(6) 26 and 31 Ridout Road were designated on 29 November 1991 as conservation properties (and they were subsequently gazetted in 1992), as they are two rare and intact remaining historic bungalows built in the early 1900s, whose outstanding architectural quality represents the culture and lifestyle of a period in Singapore’s history.

URA’s requirements of conservation and protection

10. Ms He Ting Ru had asked about parameters and guidelines for the grant of conservation status. As Singapore’s conservation authority, the Urban Redevelopment Authority (URA) is mandated to identify for protection and conservation properties in Singapore which are of heritage value.

11. URA conserves various categories of pre-war bungalows, amongst which the Black and Whites is one category.  These are characterised by a particular architectural style from the early 1900s and are visibly recognisable by the black timber structural frame with white infill plastered walls.  Hipped tiled roofs with wide overhangs and extensive verandas are also common features.

12. These bungalows are a part of Singapore’s history.

(1) Some are located in areas where the British naval and air bases used to be:  

• For example, Sembawang and Seletar.

13. At present, there are 36 conserved Black and Whites, and a further 235 State-owned Black and Whites are marked for study for conservation and hence in the meantime, they are protected.

14. Both categories, whether conserved or protected, impose obligations on the property owner, such as respecting the key elements of the bungalows in the use of the bungalow – namely, the roofs, the structural members, facades of the building, doors and windows and significant interior features including staircases, decorative mouldings, double volume spaces.

15. In assessing No. 26 and 31 Ridout Road for conservation, URA took into account the following:

(1) First, these are two intact remaining historic bungalows built in the early 1900s.

(2) Second, they are good examples of the “Black and White” architectural style which had been built by the Public Works Department of the colonial British government, which was responsible for building infrastructure – such as roads, bridges, irrigation works, reservoirs and so on – as well as providing accommodation for Government servants who oversaw such works.

Development Plans for heritage bungalows

16. In managing the older, heritage properties, SLA aims to optimise their usage.  At the same time, however, SLA also has to be responsible and mindful of maintaining these properties to meet their conservation and protection status:

(1) These bungalows were built around the early 1900s, and so are about 100 years old today, maintained in their original condition.

(2) They are located in a wide range of neighbourhoods, both in the central as well as in other areas.

(3) Some of them are found in dedicated estates for Black and Whites, for example, Malcolm Road.

(4) Others are interspersed with other private residential properties that are non-Black and Whites, for example, in the Ridout Road estate.

17. The development plans for these properties are ultimately guided by a few factors.

18. We must first have regard to URA’s Master Plan which takes into account the intrinsic heritage value of the properties, amongst other factors:

(1) Specifically, the planning parameters assigned to areas with Black and Whites, are important considerations.

(2) The planning parameters determine how such land can be used, and for what purpose:

• For example, whether it can sustain high intensity development (such as high-rise buildings, commercial developments and so on).
• Or alternatively, whether it is zoned only for low intensity, landed properties only.

(3) Where possible, we will also consider if these properties can be modified for other uses or be integrated as part of new developments, with a view to rejuvenating and revitalising the area. This allows for modernisation of the estate while preserving the property’s core heritage value.

(4) In addition, we also take into account that these properties, which are dated to begin with, will require more maintenance and upkeep, and this will cost more.

19. Second, these lands are part of our reserves:

(1) Singapore’s overall portfolio of State assets comprises financial and physical assets.

(2) Our physical assets include State lands.

(3) The State should be able to keep land parcels, as a block, where appropriate. This will give URA sufficient planning latitude.

(4) So these are the considered decisions that take into account a balance of factors, including the URA Masterplan.

20. Specifically, for a heritage bungalow, there is the building itself – which has heritage and historical value.

21. There is also the land on which the building sits and the areas adjacent to the building.  How this land is utilised is also considered in the context of the URA Masterplan, which sets out a suite of planning parameters to guide our land use to meet our nation’s needs.  In addition to preserving land, which is part of our reserves, we also manage the land use to cater to Singapore’s land needs in areas such as housing, education, and commercial uses.

22. Accordingly, over time, SLA has carefully broadened the usage and deployment of these properties to meet the evolving needs of Singapore. A judicious balance is necessary, particularly between protecting heritage properties in Singapore and redeveloping them altogether.

23. Hence, while we continue to retain some of the heritage bungalows for their original residential use on the rental market, some others have been demolished as a cluster to make way for newer developments. Others have been re-purposed for different uses, such as commercial and retail, or for example, food and beverage (F&B).

24. With these parameters in mind, the Government has sought to re-purpose our heritage bungalows for various alternative uses.

25. And I thought it would be illustrative for me to cite some examples in this House for Members to appreciate:

(1) At the Gallop Extension to the Singapore Botanic Gardens, the bungalow at 5 Gallop Road has been repurposed as a Forest Discovery Centre. This is a public space, and serves as a picturesque backdrop to popular picnic grounds for the public. I’m sure some members, have visited the Centre.

(2) A standalone Black and White at Bah Soon Pah Road, which used to house an executive of a rubber estate, is under study to be conserved and integrated within a new HDB residential area. This was reported in the media in August 2022.

(3) Rochester Park and Nepal Park were developed by the British in the early 1950s to house officers and their families:

• The area was given conservation status in 2010. 12 conserved bungalows at Rochester Park have been put to new uses at Rochester Commons – a new integrated campus-style development in one-north by CapitaLand. On this location, SLA also works and partners with private sector partners to develop the space and to place-make Rochester Commons.
• Standing on a 2.4ha site, the mixed development will have an office tower, hotel, as well as 12 conserved bungalows which are retained in their form, the bungalows themselves, with F&B and office uses.

(4) Such heritage properties are not only being used - “such” meaning heritage properties - are not only being used for purely commercial purposes. For instance, bungalows have been also converted to kindergartens and also in some cases, serves as a shelter for women undergoing unsupported pregnancies. So we look at a broad range of uses, F&B, commercial, and in some cases, social as well.

(5) In other cases, where possible, bearing in mind the circumstances and the location in the Masterplan, a larger site comprising more properties might well be suitable for a wider scale redevelopment:

• For instance, a cluster of 174 Black and Whites in Seletar Camp were previously demolished to make way for an industrial park.

(6) As I said, one has to bear in mind the specific context in which the estate is found, and also the Master Plan. If the Black and Whites are located amidst or amongst a landed enclave, such as in Ridout Road or perhaps Nassim Road, an area that is zoned for landed properties, removing the Black and Whites, or redeveloping them and the land around it, will not change the area much:

• The cleared land can only then be similarly used for low intensity development.
• It would not be possible to put the site to other uses, for example, some of those examples and occasions which I cited earlier.

26. Accordingly, to Mr Gerald Giam’s and Ms He Ting Ru’s questions about the Government’s development plans for Black and Whites:

(1) These plans are driven by master-planning considerations.

(2) Taking into account specific circumstances of each set of properties where they are located, but also bearing in mind the intrinsic heritage value, and the possible uses that might be made of not just the building, but of the location and the site.

(3) One also has to be sensitive to the surrounding vicinity. As I mentioned, we cannot intersperse commercial activities amidst low-intensity development spots.

(4) And within that entire framework, SLA seeks to optimise social outcomes and occupancy, and ultimately, to generate revenue where possible.

27. These plans also seek to strike a balance between the preservation of heritage and the need to reallocate land for other uses.

28. Another related question raised is: why not break down a large plot of land and sell it in smaller parcels?

(1) Singapore’s approach to land sales is primarily based on planning and development needs, and not mainly to maximise land sales proceeds.

(2) This is a considered decision that takes into account various factors.

(3) URA, through the Master Plan, assesses the best uses of the land, in the overall context of land allocation in Singapore.

(4) The planning considerations I have spent some time outlining are also relevant.  It is not always tenable to break up land into smaller parcels, situated side by side but then each having a different land use. It would not place-make and in some cases, the uses may conflict with one another.

(5) In addition, the State should be able to keep land parcels as a block, where appropriate, as part of its land bank. This gives URA maximum planning latitude when it comes to future master plans.

Maintenance and upkeep of conserved Black and Whites

29. Mr Leong Mun Wai and Mr Leon Perera asked about the maintenance of Black and Whites.  As I have explained above, a portfolio of such Black and Whites are kept as residential housing. They are leased out - they are not sold - on a rental basis. They are also subject to conservation and protection requirements.

30. I would add that, particularly for conserved Black and Whites, and those which are protected whilst being studied for conservation, SLA invests a significant amount in upkeeping and maintaining the properties.

31. A key reason for the cost is the nature of the conservation requirements for such properties:

(1) They are much older than the average property in Singapore, and require a lot more care, by way of renovation and maintenance.

(2) This is consistent with other similar conserved buildings in Singapore which have to comply with the relevant guidelines imposed on them as a result of either their conservation or their protected status.

32. The requirements to maintain a conservation property apply to many aspects of the property and are very specific:

(1) For example, the guidelines will spell out the restoration requirements for the conserved building, the alteration works that can be considered,

(2) And the interfacing zone between the conserved building and the new additions, if any, around the area.

33. The restoration guidelines will specify details such as the design, location and material that can be used for all key elements such as the roofs, building facades, outhouse, floors, staircases, internal finishes, building colours and even in the context of air-conditioning and exhaust fans.

(1) Renovation and refurbishment of a conserved residential property put up for rent is, thus, not just to ensure that it is in a tenantable condition, but also to comply with the relevant guidelines which protect the heritage value of the property.

(2) When renovating a conserved or protected building, there is significant prescription on how the works and renovations are to be done.

(3) Features such as the beams and roof of the property must remain unaffected to the extent that they reflect the architectural value of the property, which was the reason it was identified for conservation in the first place.

Limitations on upgrading Black and White

34. Besides the renovations required under conservation obligations, the interior and facilities of most Black and Whites also require upgrading.

35. Many Black and Whites are more than a hundred years old and they are not like modern detached houses.

36. Most Black and Whites lack modern amenities which we often taken for granted, and require significant effort to retrofit:

(1) For example, some may lack air-conditioning, water heaters or even cooking hobs.

37. Members have seen pictures of some Black and Whites over the last couple of weeks in the press:

(1) And you will see that the condition of these properties prior to tenancy, especially if they have been vacant for prolonged periods, is fairly obvious from the pictures.

38. Therefore, quite often, incoming tenants have to undertake capital expenditure to upgrade the unit to raise it to modern standards.

(1) But the conservation requirements that I just outlined, often impose constraints on how far a tenant can retrofit the properties in question.

39. Also, unlike owners of a property, tenants can only enjoy the benefits of retrofitting for the duration of the tenancy:

(1) It is a standard term in such leases that when the tenancy lapses, the property, and everything that is upgraded by the tenant at his cost, will be returned to SLA, if SLA wishes to keep the upgrade. This clause also appears in the tenancies of both No. 26 and 31 Ridout Road.

(2) In such cases, there is therefore a need to find a tenant who is prepared to:

• Invest capital to upgrade the unit to meet modern day amenities.
• Accept that the benefits of investment can only be enjoyed for the duration of the tenancy.
• And take on the risk of a higher rental price to renew, or not renewing and writing off the cost of the capital expenditure altogether.

40. This limits the pool of prospective tenants for Black and Whites.

(1) Most tenants would prefer a ready-to move in property:

• Which they can furnish and almost immediately occupy.

(2) And not have to fork out capital expenditure.

41. To address this challenge, SLA has been adjusting the structure of tenancies to provide more flexibility:

(1) For example, in suitable cases, where tenants are prepared to commit larger sums of capital expenditure to enhance the properties, SLA has been prepared to grant tenancies of 5+4 years. So, 5+4, instead of the 3+3+3 years, so that there is a longer lead time in the initial tenancy period to recover the amortised cost of the capital expenditure.

(2) This ties in with the larger goal of maximising occupancy while ensuring that the tenants are able to keep up and maintain the properties, and, where possible, also enhance and add to the property through the tenants’ capital expenditure.

(3) In addition, SLA is also studying the feasibility of extending even longer leasehold periods (e.g., 30 or 60 years) in an estate en-bloc so that a private developer can come in as the master-leaseholder and rejuvenate the entire estate and be able to upkeep the properties in the meantime, as well as reap the benefits over the longer lease period.

42. These are various measures which SLA is taking, amongst others, to manage the category of bungalows that are within its management portfolio to maximise the opportunities for the State to benefit from these properties.

Rental benchmark against the private residential market

43. Mr Don Wee had asked about the rental rate of State-owned heritage properties benchmarked against the private residential market.

44. Sir, the valuation of residential Black and Whites for rental is dependent on various factors.

(1) First, the Gross Floor Area (GFA) is the guiding component in determining the rent.

• GFA represents the available live-in space for the tenant.

(2) As between GFA and land area, the former usually has a larger impact on the marketability of the property.

(3) Other factors, such as condition of the property and location are also relevant.

45. In his report, SM Teo has set out the comparable rental and occupancy rates for both State-owned Black and Whites as well as private properties.

46. The following additional points can also be gleaned:

(1) Rental trends of Black and Whites tend to follow the general rental market trends.  For the relevant period in 2017-2019, market conditions were weak and generally on a downward trajectory.

(2) This is evident from URA’s rental index for landed properties which showed a consistent softening of the rental market from 2015 to 2020.

(3) The demand for leasing generally, and Black and Whites specifically, was much lower at that time, in the period 2017 to 2019, compared to today. The occupancy rates of State properties have generally moved in tandem with market conditions.

(4) Rents of private detached homes and Black and Whites typically trended in the same direction from 2012 to 2019, though the former plunged more severely from 2020 to Q32022 and recovered more aggressively from late 2022 to 2023.

(5) This trend has a direct correlation to the occupancy rates at the Ridout properties:

• In January 2018, the occupancy at Ridout Road estate was 71%.
• This increased to 100% occupancy in January 2022.
• And has stayed at 100% since that time.
• In 2019, 4 tenants (out of 14 Black and Whites) requested to pre-terminate their tenancies.
• Since 2020, no tenant has requested pre-termination.

47. When the rents by land area rent of private detached homes in Good Class Bungalow (GCB) areas is compared against Black and Whites, there is also a significant divergence.

(1) The average land area rent per square foot per month for private detached homes in GCB areas is between 3 to 5 times higher compared to the comparable rent by land area for Black and Whites.

(2) One reason for this is, of course, the average land area for Black and Whites are usually larger than private detached homes in GCB areas.

C. MANAGEMENT OF BLACK AND WHITES

48. So with that background, let me turn now to the various questions raised on SLA’s management of Black and Whites.

49. Various Members of this House – including Mr Louis Chua, Mr Murali Pillai, Mr Don Wee, Ms Hazel Poa and Mr Leon Perera – have asked about aspects of the process by which SLA manages such leases. Mr Sitoh Yih Pin also asked about SLA’s standard tenancy operating procedures.

50. SLA manages land resources for Singapore’s economic and social development:

(1) Therefore, SLA supports social uses, even whilst it seeks to maximise occupancy of Black and Whites.

51. Managing Black and Whites like any portfolio of real estate assets, requires an appreciation of market conditions and its dynamics, and being adaptable to the demands of the market.

52. In respect of its portfolio of Black and Whites:

(1) Some properties are managed directly by SLA, and others are managed by Managing Agents (“MAs”).

(2) SLA diversifies the management of its portfolio to include private sector MAs as they are professional organisations, experienced in managing properties in the public and private markets.

(3) In addition to their expertise, they have their own networks and portals through which they can market the properties that they are managing. This allows SLA to access a wider market.

(4) SLA works closely with its MAs, who are incentivised by the terms of the arrangement to maximise occupancy and drive rentals, as well as to reduce costs. The MAs are given a broad discretion to manage the properties, consulting SLA from time to time as may be necessary, depending on the particular circumstances of each case:

• It is not uncommon for SLA to become involved in handling the management of a property under an MA’s purview, for example, when there are requests beyond the scope of an MA’s mandate.
• For example, when the scope of works to be done exceeds the usual works that would be done by the MA,
• or where discussions arise on issues that the MA does not usually handle: e.g., privacy, security and other issues.

(5) This is when the MA, which serves as the agent, goes back to the principal - in this case, SLA - for directions.

Marketing

53. When marketing a property, the aim is to maximise occupancy, which the MAs are incentivised to do under the terms of their agreement with SLA.

54. As with all forms of marketing and advertising, it is necessary to adapt the strategy to match prevailing market conditions.

55. The general market practice in the real estate industry is that when market conditions are good and demand exceeds supply, almost all vacant properties will be posted on public platforms:

(1) In the case of State properties, this will be the State Property Information Online portal (“SPIO”).

(2) This is because in a buoyant market, with strong interest, take up would be likely.

56. When property market conditions are poor, however, and supply exceeds demand, or if occupancy in certain estates is low, SLA and its MAs would avoid listing all vacant properties online:

(1) Listing all properties would result in them visibly competing for the limited demand.

(2) This runs the risk of driving the price down, depressing outcomes for the landlord.

57. In respect of property marketing:

(1) Today, all residential State properties available for rent are listed SPIO.

(2) They are listed for at least 14 days.

(3) This practice was implemented following a review in Aug 2022, taking into account prevailing market conditions at that time.

58. At the material time, in 2018/2019, there was no requirement to list all the properties on SPIO. SLA and its MA had the discretion on whether to list the properties they managed on SPIO.

59. For completeness and context, let me explain SLA’s policy and thinking on whether to list its properties on SPIO driven by prevailing market conditions:

(1) In 2007, experiencing high demand, SLA required open bidding, which in turn necessitated all residential properties managed by its MAs to be put on the SPIO.

(2) Later, the market softened. The success rate of residential State properties allocated through open bidding dropped. SLA then adjusted its policy to allow direct letting for specified estates, particularly for those with less than 80% occupancy:

• SLA’s MAs had the discretion to decide how to market the properties, which were under their portfolio, to maximise outcomes.
• In Aug 2022, as the market revived, SLA reverted to requiring all properties to be listed on SPIO.

(3) I should add that these are operational concerns decided by SLA.

60. The usual methods employed by the MAs to market the properties include:

(1) Listing available properties on property portals.

(2) Circulating the relevant information through its own network of agents.

(3) Listing on social media as appropriate.

(4) Placing “To Lease” signages on the properties itself.

61. The Ridout Road Estate was managed by two professional MAs at the relevant time.

62. 26 and 31 Ridout Road were managed by the same MA and that was DTZ Facilities & Engineering (S) Limited. They were managing them up to 31 March 2018. Subsequently, from 1 April, Colliers International Consultancy & Valuation (Singapore) Pte Ltd took over as the MA.

(1) In both these cases, as was the case for the entire Ridout Road estate, the MAs decided how the properties would be marketed.

(2) They could tap into their network of private agents; advertise on social media, and allow for there to be this exchange of information between agents who might, for example in some cases, choose to co-broke the marketing of a property.

63. Mr Zhulkarnain had asked what steps were taken by SLA to market the two properties to be leased:

(1) As highlighted, both properties were under the same MA at that time, who decided on the best way to market them.

(2) For 26 Ridout Road, it was marketed by the MA from the time the previous tenant pre-terminated, in December 2013. The usual methods as I have outlined above would have been carried out. However, there were no offers.

(3) The MA then decided to undertake some minor works to make the property more presentable to prospective tenants. This was done around late 2016. Thereafter, the property was marketed by the MA again and the usual methods of marketing would have been deployed.

(4) The MA had also broadcast the property to their network of private agents who deal with and transact in such properties.

(5) For 31 Ridout Road, the MA undertook the usual methods of marketing, as above. In this case, it chose to list the property on SPIO.

(6) In addition, it also granted a local film company access to film an interactive arts performance at the property. This was then used as an opportunity to showcase the property.

(7) This process, for both properties, was consistent with the approach taken by SLA, in all other properties marketed by MAs, with the MAs exercising discretion on how to market the property.

Valuation

64. Sir, let me now turn to valuation. Upon successful marketing, when a prospective tenant makes an inquiry, it would be necessary to conduct a valuation, to ascertain the valuation of the property being considered for leasing:

(1) These valuations are conducted by professional valuers within the MA or SLA respectively.

(2) The valuation team uses established industry principles and methods for valuation:

• Factors such as location, use, floor area, physical condition of the property and prevailing market conditions will be taken into account.

(3) The SLA valuation team operates separately and independently from the team in charge of leasing. Typically:

• The leasing team would submit a request for valuation of a particular property.
• Setting out the parameters of the proposed lease of the property, and
• The valuation team will then determine the guide rent for the property.

65. SLA’s Valuation team uses the direct comparison method when undertaking valuations. This is an accepted industry methodology for rental valuation:

(1) The premise is that a potential tenant would be willing to pay similar rent to a comparable property that is available for rental, and this gives a good gauge of the market.

(2) Hence, when valuing a Black and White, a comparable property is considered which takes into account the factors identified earlier –location, floor area, condition and so on.

66. The valuation team also has regard to the prevailing market conditions and other contextual factors:

(1) For instance, in a falling market such as in 2018, the valuer takes into account the trends in the neighbouring comparable properties, making adjustments for outliers where appropriate.

67. The valuation is for the purpose of determining the Guide Rent for a given property.

68. The independent SLA valuation team which looks at valuation for Black and Whites will assess the market value and give the leasing division a baseline that must be achieved for the property in question. They, meaning the SLA valuation team, do not know the identities of the prospective tenants or the actual rents negotiated by the parties.

Leasing

69. I turn to the final aspect in managing Black and Whites - the leasing process.

70. Mr Leong Mun Wai, Mr Murali Pillai and Mr Leon Perera have raised specific questions on SLA’s bidding process, including how long the bidding was open for 26 Ridout Road after Minister Shanmugam’s bid was received.

71. In general, there are two modalities for leasing of all residential state properties, and that includes Black and Whites:

(1) The first is open bidding.

(2) The other is direct letting.

(3) In this case, both 26 and 31 Ridout Road were allocated on the basis of direct letting.

72. Let me explain these two modalities:

(1) Today, under an open bidding allocation:

• The property would be listed on SPIO for at least 14 days.
• This is called the notice period.
• Thereafter, there is a 5-day bidding window.

(2) During the notice period, either SLA or the MA, depending on which property is being asked about and whether it is under their portfolio, will also organise open houses for the property in question.

(3) Once the bidding window closes, the tenancy is offered to the highest bidder:

• This is subject to the bid meeting the guide rent and satisfying other due diligence checks on the bidder.

(4) The Guide Rent is not revealed to the bidders (or their agents) in this process.

(5) On Mr Louis Chua’s question as to the publication of tender awards on SLA’s website – the highest bid rent in the tender and tender results are published on SPIO for 6 months:

• Ms Hazel Poa asked about the reason for this 6-month period.
• The short answer is that after 6 months, valuations would be outdated as the market might have shifted, and the information is less market relevant.
• Therefore, it is no longer listed on SPIO after 6 months.

73. The second modality is direct letting:

(1) Under direct letting, the MA or SLA receive offers directly.

(2) Their offers can be accepted if the bids meet or exceed the prevailing guide rent.

(3) These offers are not published.

74. The decision as to whether to allocate specific properties to direct letting or open bidding, within an estate for which direct letting is permitted, is left to the discretion of the relevant MA or the SLA portfolio manager.

75. In making this decision, the following general trend is considered:

(1) Estates identified for direct letting are generally one of two categories:

• Those with low occupancy rates.
• Or which have otherwise been assessed to benefit from direct letting due to their specific circumstances.
• An example is estates where many units have become available together, such that there is bidding fatigue from the earlier batches of units that were released.

76. Ms Hazel Poa asked if SLA was aware of the identity behind the bid for the leasing of 26 Ridout Road. The answer is yes. SLA has to know the identity of the prospective tenant in order to process and assess the bid. But the SLA valuation department and the SLA valuer who assessed the guide rent on 26 Ridout Road, did not know that the prospective tenant was Minister Shanmugam. As CPIB has established, the valuer did not even know that Minister Shanmugam and SLA had settled on a rent of $26,500. She had assessed the guide rent not knowing the identity of the prospective tenant or the rent he had already agreed to pay.

77. Mr Leong Mun Wai asked whether President’s agreement is required when not awarding State properties to the highest bidder. This issue does not arise in the context of the rental of State properties that I have outlined:

(1) For State land and State properties, the President’s agreement is required if such land or properties are to be disposed of below Fair Market Value such that there would be a draw on Past Reserves.

(2) The grant of tenancies of State properties by SLA is not a disposal of State properties.

D. WORKS ON THE PROPERTIES

78. Next, let me turn to the works on the properties. Mr Leong Mun Wai and Mr Leon Perera have asked about the improvement and maintenance works carried out at both properties.  Let me explain this.

79. For context, Members will recall that both these properties have been gazetted for conservation, and SLA is responsible for the maintenance works based on the conservation and restoration guidelines that I mentioned earlier.

80. Let me illustrate what this means, with a few examples relevant to the two properties:

(1) For the main roof, the original profile, pitch, height, and eaves projection have to be retained and restored.  Owners are required to keep the original roof tile material, colour and profile if it is a unique feature of the building.

(2) Structural strengthening or supports like steel or reinforced concrete roof beams, if required to be added, have to be done in a way that is sensitively designed to minimise visual impact on the traditional timber system to be retained.

(3) Another example is the architectural features of the building facades.  The original fanlights, windows, doors and vents are to be retained and restored. Internally, owners may be required to keep such original finishes of the internal ceiling/wall/floor that give a distinctive character to the building.

(4) Thus, all works have to be done in a manner which preserves the architectural style and features of the “black and white” bungalows as defined by URA.

(5) All of this has a significant impact on the costs of the repairs.

81. Therefore, SLA’s practice is to engage an external consultant to assess the state of the property, and determine the works which have to be done, bearing in mind the relevant conservation guidelines.

82. While these works are done in periodic cycles, where practical, SLA tries to do them in the lead up to a confirmed tenancy, to avoid disrupting existing tenants and also to ensure that the costs of these works can be recovered from a prospective tenant.

83. For 26 Ridout Road, SLA engaged a consultant who had experience in dealing with heritage properties, to survey the property and identify the necessary works to be done. And I will add that this consultant was engaged before a bid was made for 26 Ridout Road.

84. The works identified by the external consultant were in the nature of structural items such as timber beams, rafters and columns, and other heritage features. Together, these aspects, as assessed by the external consultant, cost about $375,000, out of the total amount of $515,400 incurred for 26 Ridout Road.

85. A similar building management inspection was also undertaken by an external consultant for 31 Ridout Road and the works to be done were identified and proposed by the consultant.

86. This included extensive works to the roof which was assessed to be in a bad state as well as for other heritage features.

87. For 31 Ridout Road, these works as recommended by the consultant, cost around $452,000 out of the total of $570,500 spent on No. 31 Ridout Road.

88. In addition, SLA also did the usual sprucing up works prior to the commencement of a tenancy:

(1) These are the usual works done shortly before the property is handed over to a new tenant, to ensure that the property is habitable.

(2) For 26 Ridout Road, the works included painting, pest control and removal of mould. All this cost around $140,000.

(3) For 31 Ridout Road, the works included general repairs to the staircase, the perimeter of the house, fixing windows, painting and pest control (and in this case, also snake combing). The total cost of the sprucing up works for 31 Ridout Road cost around $118,000.

89. The works done by SLA were in keeping with SLA’s general practices, as I described earlier in my speech.

90. On the clearance of the additional land for 26 Ridout Road, as I mentioned, the costs were fully recovered from the tenant by amortising it through the rental collected over the period of tenancy.

91. Turning to the works done by the tenants themselves, Minister Shanmugam offered to and did invest in substantial improvement works to the property.

92. This included a new air-conditioning system, building a new carpark shelter, constructing a swimming pool, installing garden lights, and upgrading the toilets as well as adding trees and other planting.

93. Minister Shanmugam spent in excess of $400,000 on these improvement works:

(1) All improvement works undertaken by the tenant become the property of the landlord.

(2) And revert to State ownership when the property is returned to SLA.

(3) This, as I mentioned earlier, is established practice, for all tenancies requiring capital expenditure.

(4) These works are in the nature of capital expenditure and they seek to enhance the value of the properties.

94. Dr Balakrishnan similarly undertook improvement works with a cost of around $200,000, including installing air-conditioning, upgrading the toilets and building a pavilion as an extension of the property’s garage.  Many trees were also planted.  URA approved the retention of the pavilion, as it did not affect the façade of the conserved building.

E. TREE CLEARANCE

95. Next, Ms Hazel Poa and Mr Leon Perera have asked about the trees within the two properties, that were felled.

96. Both properties are located within the Tree Conservation Area:

(1) Any tree within a Tree Conservation Area with more than a 1 metre girth would require NParks’ approval to be felled.

26 Ridout Road

97. Prior to the tenancy of 26 Ridout Road, trees of less than 1 metre girth were removed by SLA as part of clearing the additional land. NParks’ approval was not required for these trees.

98. After the tenancy commenced:

(1) The tenant periodically raised concerns about the structural and health conditions of the older trees, including in one instance after a neighbour expressed concerns about safety.

(2) There were legitimate concerns that some trees, such as decayed trees and those with poor vigour or structural defects, would pose safety issues. This in fact, was the specific issue that Minister Shanmugam was concerned with, and which explained why he was not keen to have the additional vegetated land fenced into his tenancy:

• The legal obligations arising from any mishaps or failure to maintain the land properly within the tenancy boundary fall on the tenant.

(3) On each occasion, before any decision about the tree - any of the trees felled - was made, an arborist was brought in for a tree inspection. For the trees that were removed, the reports found evidence of various problems that posed safety concerns such as wound decay on main trunks and on buttress roots.

(4) Nineteen trees of girth size more than 1 metre were removed on various occasions since the tenancy commenced about 4.5 years ago, each time upon feedback that the trees may pose safety issues.

(5) For 18 of the 19 trees, there were independent arborist reports:

• These reports set out the condition of the trees in detail, and found either decayed buttress roots, structural defects, termite infestations, poor structural form and vigour, or severe leaning resulting in high potential for failure.
• The reports were the basis upon which approval was then sought and obtained from NParks for every one of these trees.
• NParks also conducted site visits to inspect the trees in person, where necessary.
• And it was only thereafter that the trees were removed.

(6) The one tree which did not require an arborist report had failed in bad weather. NParks’ approval was obtained to fell or remove the rest of the tree that had already failed.

99. The MA has also replaced 17 trees in the property, over the last 5 years.  And the tenant has also replanted trees in the property in addition to those replaced by the MA at his cost.

31 Ridout Road

100. 31 Ridout Road was also in the Tree Conservation Area.

101. Likewise, felling of any trees with more than a 1 metre girth needs NParks’ approval.

102. Approval was granted by NParks to remove 24 such trees after an independent arborist assessment showed that these trees were at risk of failure and posed safety concerns.

103. Likewise, the trees were felled after NParks gave the approvals. And this was done prior to the start of the tenancy.

F. THE TENANCIES OF NO. 26 AND 31 RIDOUT ROAD

104. Sir, as I wrap up, I would like to address Members Mr Sitoh Yih Pin’s and Ms Hazel Poa’s questions about whether SLA had deviated from its usual processes, in the rental of the two properties.

105. Mr Murali Pillai also asked if the process was fair, transparent and competitive.

106. Sir, let me go back to CPIB’s conclusions. It found no evidence of corruption or wrongdoing in either of the two rental transactions. It had examined the direct letting of the properties to Ministers Shanmugam and Vivian, and found that they were applied fairly.

107. The internal processes and standards as regards marketing, valuation and leasing were adhered to scrupulously by SLA, with no preferential treatment being given to either Minister. The Ministers had access only to publicly available information concerning the leases.

108. I have described in detail how SLA handled the process:

(1) For both properties, offers of rental were made which met the Guide Rent.

(2) In addition, both tenants would be making substantial capital expenditure to renovate and enhance the properties.

(3) SLA would then be able to retain these enhancements at the end of the tenancy period.  This would add value to any subsequent tenancy, for SLA, and also be set off against the works which SLA had to undertake to renovate and refurbish the properties which I have taken Members through.

(4) It should also be borne in mind that both these offers were made at a time when the rental market in Singapore was depressed.  The previous tenant of 26 Ridout Road had pre-terminated their lease, and no viable offers were received in the intervening period for either property.

(5) In addition, in the case of 26 Ridout Road, the cost of maintaining the additional heavily vegetated area would then fall on the tenant. And this would have been in the order of $25,000 a year.

109. In these circumstances, there was every reasonable, commercial basis for SLA to have entered into those transactions.  The terms of both leases were standard and did not contain any unusual clauses. They were entirely at arms-length, and did not deviate from usual processes:

(1) The specific valuer handling the request for valuation did not know the potential tenant.

(2) And Senior Minister Teo has explained how Minister Shanmugam had removed himself from the chain of command and decision-making process.

AGO audits

110. Sir, one last question to address, and that is Mr Gerald Giam’s question on whether the bidding process at SLA is audited by AGO.

111. AGO conducts annual audits of the Government Financial Statements and this includes receipts collected by SLA on the Ministry of Law (MinLaw)’s behalf.  These receipts include rental income from State land and buildings. The Government Financial Statements audit does not cover the revenue tendering process of State properties (as the audit objective in that case is to ascertain whether the receipts reported are accurate).

112. However, in addition to the annual audits, AGO also carries out selective audits of statutory boards in rotation. AGO last audited SLA in FY 2018/19. This covered the period April 2016 through to June 2018. In a selective audit, AGO has the discretion to decide what areas they choose to audit using a risk-based approach and also decide on the specific timing and timeframe of such audits.

G. CONCLUSION

113. Sir, I have sketched out how all parties concerned operated in accordance with their usual processes and procedures.

114. I thank Members for their questions.

115. It has provided me with an opportunity to lay out the facts clearly, fully, relating to these two tenancies.

116. I welcome any further clarifications which Members may have subsequently.

117. Thank you, Sir.

Last updated on 3 July 2023