Since I raised initial concerns the Ridout controversy has done the rounds of Singapore alternative media much inflamed by SLA putting out a statement in response to my blog articles. Why did they do that??

On Sunday Bertha Henson mused:

“I think we should be clear about the issues surrounding the Ridout Road properties rented by the two ministers.” She’s right. The government has announced that everything was above board but also that this will be discussed in parliament in July??? So with weeks of speculation ahead we should be clear about the issues.

First let me blow away some cobwebs from my own point of view. Again taking Bertha’s Sunday musings.

Bertha: ” Is this about ministers renting luxurious properties beyond their pay, as Kenneth Jeyaretnam says?” and It’s not anybody’s business who can afford what. *Note that both were big earners in the past and ministers aren’t paupers.“

Actually I didn’t say that. I did not rule out private wealth and savings. I specifically referenced it. Anyway the answer from me is, No. Not from a point of me caring how any regular millionaire or billionaire spends their money on private property. Good for them!

But what do we mean by “beyond their pay?” It is a fact that market rents on these properties would be in the region of a very minimum of $200,000 a month and therefore clearly beyond a Ministerial salary. So technically yes ‘beyond their pay.’ However guidance on the SLA website says that the applicant’s salary should generally be 3x the monthly rent. As the Ministers won the tender It would be logical then that the rents they are paying are below 45k. Not anywhere in the vicinity of true market value. So this is an issue of a drain on our reserves and we need to know whether the President was kept abreast of these deals.

These properties and the land they sit on are state owned, state assets. Essentially the concerns I have raised are to do with rentals yes. Rental of state assets which leads to concerns over mismanagement of our Reserves and a possible drain on our Assets. All of this in the public interest. This is why I have asked the President to get involved.

Conflict of interest is an undeniable concern too. That’s what this is about. Inequality also comes into it. Possible abuse of power too. I know the “optics” as the PR people say are terrible and the hypocrisy is off the scale but that’s a by-product of the core issues and public shock. It’s not anybody’s business because it’s everyone’s business.

It really is a curious incident. Until this came out I had presumed that Shanmugam was still living in his actually luxurious landed family home in the Queen Astrid Park area and Balakrishnan in his bungalow near TCB’s bungalow. Why would two Ministers already in possession of luxurious landed family homes and lifestyles move themselves into these two rental properties typically offered on only two year terms??? It can’t be possible that they needed the space. Lim Tean has done some good comparisons of the sizes by the way.

Many are thinking of Nassim Jade but a huge discount is not the only way of getting an advantage. This isn’t Nassim Jade because anyway those were private properties. Apart from discounts, advantage can be gained from asymmetric access to information. There are other unfair advantages like rent free periods offered to the Minsters whilst renovations took place, if other tenants weren’t also offered this. And was an assurance given that renewal after 2 years wouldn’t be a problem?

There is a clear conflict of interest here such that Minister Shanmugam will never be in a position to demonstrate that he didn’t have preferential access to information. Whether he actually got information or used that information is irrelevant. He oversees SLA. In that role he appointed the CEO of SLA most recently in 2021. In his role overseeing SLA he becomes Schroedinger’s Shanmugam. Both tenant and landlord at the same time. Until we open the box. Prudent governments that are safe to manage our assets would never allow a senior Cabinet Minister to put himself in this conflicted situation. I’m not implying anything. The conflict is blatant and egregious. It’s why I have asked for an independent COI because otherwise SLA will be marking its own exam answers. Let’s remember that Shanmugam took the advice of a senior cabinet colleague. Why would SLA know that and why would he do that if there was no conflict?

The really big question hanging over these revelations is WHY? I’ve said they were very much not luxurious except in terms of size until they were modernised and extended and the land deforested. `They had been empty. The ministers already had luxurious landed properties they own. Usually only expats go for these SLA properties because they are seconded to work in Singapore on 2 year terms and they have proper homes elsewhere. What made these empty properties suddenly so attractive that they rent with no security of tenure and with all the upheaval of moving and renovations? I’m sure vanity in living in the largest landed compound on the island after the Istana appealed but there must be more to it.

I used to run a hedge fund. an arbitrage fund. What does that mean? Arbitrage is taking advantage of price differences for the same thing in different markets. On the scale we do it in the finance industry a tiny price differential can bring great profit if you move swiftly. Once everyone discovers the difference you lose the advantage. Of course at the same time you can’t use insider information. That would be illegal. Some kinds of hedge fund traders take advantage of asymmetries of information by buying assets from people who don’t realize their value. Bill Browder became a billionaire by buying up Russian state company shares when they were privatized at a time that they were still undervalued because no one understood how to value them Most Russian oligarchs’ extreme wealth was acquired in the same manner with the state’s blessing. I believe the Ridout rental controversy has thrown up a perfect arbitrage trade using state land instead of shares.

We haven’t been given enough information to know what the guide price was for the SLA properties, who and how the renovations were managed and paid for and whether the tenders were the result of an open and fair bidding process with equal access to information and this is because the SLA website has been wiped. In order for this to be an arbitrage the same or a similar asset, in this case a landed bungalow, would have to trade at different prices in different markets.

Luckily for us even though SLA are not giving us any data there is quite a lot of data for private rental transactions. We can see from this publicly searchable information that bungalows in the Queen Astrid Park/Astrid Hill area fetch $150,000 to $200,000 monthly rental. On the other side of the equation how do we know that the SLA properties are undervalued? The answer is simple. It appears that SLA has valued the land at a historic valuation. This is not an advantage offered to regular Singaporeans when they rent or buy HDB properties. also on state land. Let’s look at what Desmond Lee (DL) said when he didn’t hold back when attacking Leong Mun Wai (LMW) for his proposal to make HDB housing cheaper. Desmond Lee accused LMW of wanting to drain the reserves. To quote DL directly he said “This is a raid on the Reserves, plain and simple, and will diminish the resources available for your children and their children.” Desmond Lee himself quoted LKY when he responded to Chiam See Tong’s questions about the cost of the land in pricing HDBs back in 1985:

May I ask whether the Member concedes that there is such a concept called “value of land”; and that there is such a profession known in Singapore as a land valuer; that the Government has a Chief Valuer; that there are, in the private sector, experts who regularly go to court and give evidence as to what the value of land is? And that the Ministry of National Development, by transferring it from the HDB to the Government, is in fact making the books widely known that the value of each plot of land will be determined and is determinable because the land can be used for defence, can be used for schools, can be used for condominiums, it can be used for HDB, it can be used for URA, who is prepared to pay what price or what use; Is there no such concept as value of land?”

This is one of the things that has most angered Singaporeans. They are continually lectured by the PAP that HDB leasees have to pay for the land cost otherwise it is draining the reserves. There are other rules such as not being able to buy a BTO flat if they own a private property or let it out until the Minimum Occupation Period has passed.

Also DL said “I don’t think you or your professional valuer will base your transaction on how much the property changed hands back in history.” In this instance the last transactions were way back in history as the properties have been empty for years. If you own a valuable object and take it to an auctioneer and ask him how much can you get for it, he will answer that will very much depend on who is in the room and that you need “two to tango.” If there was only one bidder, that bidder is assured of the article as long as they bid above the reserve price. The Ridout properties as we know had only one bidder.

The only thing that makes sense to me is that both properties were valued at historic land values and that both Ministers were able to leverage this. They should never have been allowed to bid for these state assets. We still don’t have any answers about the renovations and how they could be so confident that they would be living there for more than two years to make it worthwhile moving in the first place.

This is what I said in my last blog where I wrote an open letter to the President calling for a COI:

I have calculated based on other sale transactions of Good Class Bungalows (GCB) that the value of the land per square foot should not be less than $1100 per square foot (and probably considerably more) which makes the two properties’ combined valuation not less than $440 million. However these properties by sheer size alone are unique and do not really have a comparison unless someone in your office has done a valuation for the Istana.

On a 1% yield the market rental for 26 should be not less than $2.6 million a year while the rental for 31 should be not less than $1.4 million. But this surely is well below the long term real rate of return on the assets of Temasek, GIC and MAS that the Finance Minister uses to calculate the amount of the Net Investment Returns Contribution (NIRC) that is added to the revenue side of the Budget every year. This appears to be not less than 2% p.a. If we apply the same rate to the land reserves then SLA should be aiming to achieve a rental of over $5.2 million p.a. for 26 and $2.8 million for 31 Ridout Road. Even that rate is extremely undemanding as the rental yield from private property in Singapore is currently over 3%

The Ministers’ skill at spotting a potential arbitrage opportunity and capitalizing on it reminds me of my father’s response in 1976 to LKY (who had said that the Opposition were men who could not be trusted with running a country because they had demonstrated ineptitude in managing their own personal fortunes) that LKY had managed his own personal fortune brilliantly.It seems likely that Shanmugan and Balakrishnan have the same financial skills in managing their own personal fortunes.

There is of course one other possibility, though from where I am sitting it appears to be more mathematical than realistic. The reserves have been carefully protected, the land was valued accurately, the rental yield based on that was at market values and the two Ministers are wealthy beyond anyone’s imagination.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam