SINGAPORE — As black-and-white bungalows are difficult to lease out despite being part of Singapore’s heritage, the Singapore Land Authority (SLA) has been studying ways to better manage them, said Second Minister for Law Edwin Tong on Monday (July 3).

Mr Tong, was delivering a ministerial statement on the rental of state properties, after several Members of Parliament (MPs) filed questions following public concerns about the rental of 26 and 31 Ridout Road to Cabinet ministers K Shanmugam and Vivian Balakrishnan.

In his ministerial statement, Mr Tong said that among other things, SLA is studying the feasibility of extending longer leasehold periods of 30 or 60 years so that a private developer can rejuvenate the entire estate as its master leaseholder.

Currently, the maximum tenancy term at any one time in the first instance when entering into a tenancy agreement is three+three+three years.

The move to lengthen leasehold periods is being considered due to the challenges involved when finding prospective tenants for such bungalows, said Mr Tong, who is also the Minister for Culture, Community and Youth.

For one thing, they may lack modern amenities like air-conditioning, water heaters and cooking hobs, and retrofitting these amenities is subjected to conservation requirements, he said.

“Unlike owners, tenants can only enjoy the benefits of retrofitting for the duration of the tenancy,” said Mr Tong, stressing that the property and upgrades have to be returned to SLA once the tenancy lapses.

This effectively limits the pool of prospective tenants, since most tenants would prefer a ready-to-move-in property without needing to fork out capital, he said.

Mr Tong spoke after Senior Minister and Coordinating Minister for National Security Teo Chee Hean gave a statement on the Corrupt Practices Investigation Bureau's (CPIB) report that looked into the rental of the properties by Law and Home Affairs Minister Shanmugam and Foreign Affairs Minister Balakrishnan.

The issue arose after opposition Reform Party chief Kenneth Jeyaretnam published a series of articles that called into question SLA's processes when leasing out the black-and-white bungalows, and asking whether the two ministers had received preferential treatment over their tenancies. Several MPs also filed similar questions.

The CPIB report, which was released last Wednesday, cleared both ministers of any wrongdoing and found no evidence of corruption.

In his speech on Monday, Mr Tong addressed questions on the process by which the two properties — 26 and 31 Ridout Road — were rented out to Mr Shanmugam and Dr Balakrishnan respectively.

WERE THE RIDOUT ROAD BUNGALOWS LISTED ON THE SLA WEBSITE?

In 2018 and 2019, when the bungalows were first leased to Dr Balakrishnan and Mr Shanmugam, there were no requirements to list all properties on SLA's State Property Information Online portal (SPIO). Rather, it was up to SLA and the property’s managing agent whether to list properties on the portal.

As the market had softened during this period, SLA adjusted its policy to allow direct letting for specified estates, particularly for those with less than 80 per cent occupancy, said Mr Tong.

In January 2018, the occupancy at Ridout Road estate was 71 per cent.

“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,” said Mr Tong. For state properties, that would be the SPIO. 

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

This is because listing properties would result in managing agents visibly competing for limited demand, running the risk of driving prices down.

Mr Tong noted that 26 Ridout Road was marketed by its managing agent through listings on property portals, circulating information among its network of agents, listings on social media and placing “To Lease” signages on the property.

On top of these usual methods of marketing, 31 Ridout Road was also listed on SPIO.

WHY WAS THE DIRECT LETTING METHOD INSTEAD OF OPEN BIDDING USED? 

Mr Tong said the decision on whether to allocate specific properties to direct letting or open bidding is left to the discretion of the relevant managing agent or the SLA portfolio manager.

Under an open bidding allocation approach, a property is listed on SPIO for at least 14 days — known as a notice period where open houses for the property are organised — before a five-day bidding window. 

Once the bidding window closes, tenancy is offered to the highest bidder, subjected to the bid meeting the guide rent and satisfying other due diligence checks on the bidder. The guide rent is not revealed to bidders or their agents during this process, added Mr Tong.

Direct letting involves the managing agent or SLA receiving a direct offer from prospective tenants. The offer is accepted if it meets or exceeds the prevailing guide rent.

“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,” said Mr Tong.

“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.”

The highest bid rent in tender and tender results are later published on SPIO for six months.

In response to a question about why there is only a six-month period for the publication of these information, Mr Tong said: “After six months, valuations would be outdated as the market might have shifted, and the information is less market relevant.”

WAS SLA AWARE WHO BIDDED FOR 26 AND 31 RIDOUT ROAD?

While SLA had to know the identity of the prospective tenant in order to process and assess the bid, Mr Tong noted that the SLA Valuation Department and SLA valuer who assessed the guide rent on 26 Ridout Road did not know that the prospective tenant was Mr Shanmugam.

The SLA valuation team operates separately and independently from the team in charge of leasing, added Mr Tong.

“The leasing team would submit a request for valuation for a particular property, setting out the parameters of the proposed lease of the property. The valuation team will then determine the guide rent for the property,” he said.

Addressing a parliamentary question filed by Non-Constituency MP Hazel Poa of the Progress Singapore Party about whether SLA knew the identity behind the bid for the leasing of 26 Ridout Road, Mr Tong said the valuation team and valuer did not.

“As CPIB has established, the valuer did not even know that Minister Shanmugam and SLA had settled on a rent of S$26,500,” said Mr Tong.

"She herself had assessed a guide rent not knowing the identity of the prospective tenant or what was the rent he had already agreed to pay."

WHAT IMPROVEMENT WORKS WERE MADE?

Mr Tong said that it is SLA’s general practice to spruce up properties in the lead up to a confirmed tenancy so as to avoid disrupting existing tenants and to ensure that the costs of the works done can be recovered from a prospective tenant.

For 26 Ridout Road, SLA works which included painting, pest control and removal of mould cost around S$140,000.

As for 31 Ridout Road, sprucing up works included general repairs to the staircase, or perimeter of the house, fixing windows, painting and pest control, which cost around S$118,000.

However, works were also undertaken by Mr Shanmugam and Dr Balakrishnan. Mr Shanmugam, for instance, spent in excess of S$400,000 on improvement works including a new air-conditioning system, a new car park shelter and a new swimming pool.

All improvement works undertaken by the tenant become the property of the landlord and revert to state ownership when the property is returned to SLA, said Mr Tong.

“This is established practice for all tenancies requiring capital expenditure. These works are in the nature of capital expenditure and enhance the value of the property.”

WHAT ABOUT THE FELLING OF TREES?

As both properties are located within a "tree conservation area", trees with a girth of more than 1m require approval from the National Parks Board (NParks) to be felled.

On 26 Ridout Road, 19 trees of that size have been removed throughout Mr Shanmugam's tenancy so far, upon feedback that the trees may pose safety issues, said Mr Tong.

Independent arborist reports, which detail the conditions of the trees, were also sought for 18 of 19 of the trees, and were the basis upon which approval was sought and obtained from NParks, said Mr Tong.

NParks also conducted site visits to inspect the trees in person where necessary. Trees were only removed thereafter.

“The one tree which did not require an arborist report had felled in bad weather. NParks approval was obtained to fell the rest of the tree,” Mr Tong said.

He added that the managing agent of the property replaced 17 trees in the property over the last five years, and Mr Shanmugam had also replanted trees in the property.

As for 31 Ridout Road, NParks approved the removal of 24 trees after an independent arborist assessment showed they were at risk of failure and posed safety concerns. This removal was done prior to Dr Balakrishnan's tenancy.