A CORRUPT Practices Investigation Bureau (CPIB) review of state-owned bungalows being rented to two ministers found “no evidence of corruption or criminal wrongdoing”, while one by Senior Minister Teo Chee Hean found that all parties “conducted themselves properly” in the transactions.

The original rental rates – S$26,500 for Law Minister K Shanmugam and S$19,000 for Foreign Affairs Minister Vivian Balakrishnan – were no lower than official guide rents, with valuations taking into account floor area rather than land area.

The review reports were presented to Parliament on Wednesday (Jun 28), ahead of the Jul 3 sitting for which Members of Parliament have filed related questions.

Prime Minister Lee Hsien Loong ordered the two separate inquiries following public discussion of how the ministers had come to rent the black-and-white bungalows on Ridout Road.

CPIB said its investigation did not reveal any corrupt intent on the part of any person. There was “no preferential treatment given to the ministers and their spouses”, “no disclosure of privileged information in the process” and “no evidence to suggest any abuse of position by the ministers for personal gain”.

CPIB submitted its report to the Attorney-General’s Chambers, which agreed with its findings and directed that no further action be taken, as the facts did not disclose any offence. “The investigation into this matter is closed,” said CPIB.

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However, CPIB did discover a “lack of precision” in the Singapore Land Authority’s (SLA) use of the term “guide rent” for No 26, which was leased to Shanmugam. An earlier SLA statement that Shanmugam’s offer was above guide rent was incorrect; instead, Shanmugam’s rental of S$26,500 was equal to the correct guide rent.

“CPIB confirmed that this issue did not result from any ill intent on the part of any SLA officers involved. It found no evidence of any mala fide abuse of position in the valuation,” CPIB said.

Obtaining tenancies

Black-and-white bungalows are allocated via open bidding when market conditions are good, or direct tenancy when conditions are poor. In open bidding, the properties are listed online for at least 14 days, and awarded to the highest bidder who meets the guide rent.

In direct tenancy, SLA accepts an offer if it meets the guide rent. The Ridout Road properties were allocated through direct tenancy due to poor market conditions in the relevant years of 2018 and 2019. Both properties had been vacant for about five years prior.

SM Teo’s review noted that no actual conflicts of interest arose, and the rental process “did not deviate from the prevailing SLA guidelines and approaches”.

As Shanmugam is the Minister for Law, and the Ministry of Law (MinLaw) oversees SLA, “a conflict of interest could have arisen” if he had remained in the chain of command or made decisions that affected his rental. “However, Minister Shanmugam had removed himself from the chain of command and decision-making process.”

Shanmugam told the deputy secretary at MinLaw that he would recuse himself on any discussion related to the rental of the property, and instructed him to approach then-senior minister of state for law Indranee Rajah.

He also informed SM Teo that Indranee would approach him if the matter had to go beyond her. CPIB noted that there was no matter raised by SLA to MinLaw during the entire rental process.

The CPIB report noted that due diligence checks were also done before the signing of the tenancy agreement for No 26. The then-chief executive of SLA made a declaration to the then-permanent secretary of Minlaw, reporting that the processing of the rental transaction was done with no conflict of interest.

Guide rent

Both ministers were unaware of the guide rents ahead of their tenancies. CPIB noted that access to guide rent information was limited to relevant officials in SLA and MinLaw.

Shanmugam and his agent had come up with an offer independently, based on neighbouring properties. A neighbouring property with gross floor area (GFA) of about 800 square metres (sq m) had a monthly rental of S$26,000, or S$32.50 per sq m. No 26 had a GFA of 856.5 sq m, working out to a monthly rental of S$30.94 per sq m.

No 31, leased to Dr Balakrishnan, has a land area of 9,157.36 sq m. With a GFA of 824.3 sq m, the rental rate of S$19,000 works out to S$23.05 per sq m, the lowest in the Ridout Road estate. The guide rent for the property was S$18,800.

The S$23.05 per sq m rate was “due to the condition of the property”, and comparable to rates of other properties of “average” condition, said SM Teo’s report.

The rent for No 31 was revised to S$20,000 when the tenancy was renewed last year, based on “prevailing market conditions”.

Assessed by professional valuers, the guide rent takes into account factors such as location, use, floor area, physical condition of the property and prevailing market conditions.

The SLA valuation team’s professional view is that GFA, “which represents the available live-in space for the tenant”, is more important than land area in determining guide rent. This is because the tenant does not own the development rights to the land, and incurs maintenance costs to upkeep it, said SM Teo’s report.

The original land area of No 26 was 9,350 sq m, but later rose to 23,164 sq m. This was after Shanmugam was worried about “thick and overgrown vegetation on an empty slope of land adjacent to the property” and negotiated with SLA on clearing this land, offering to maintain it at his own cost.

But SLA’s view was that the tenant’s responsibility did not extend beyond the property boundary, so if Shanmugam were to maintain the land, it had to be included in his tenancy of No 26, said CPIB. SLA fenced the adjacent land within the property boundary, increasing the land area by close to 150 per cent.

The S$172,000 cost of site clearance, replanting of greenery and fencing was initially borne by SLA, to be recovered from the rent. The cost of maintaining this additional land, at about S$25,000 per year, was incurred by Shanmugam.

Repairs and improvement works

Substantial repairs were needed for both properties as they had not been in use since 2013. “The landlord, that is, SLA, has the responsibility to undertake essential repair works to ensure that the condition of the property is habitable,” said the CPIB report.

For No 26, the total cost of “essential repair works” to restore the bungalow was S$515,400, borne by SLA.

Shanmugam paid over S$400,000 for additional improvement works to the property, including S$61,400 for a car porch, according to the report. (See amendment note.)

For No 31, SLA paid S$570,500 for “essential repair works”. Dr Balakrishnan informed CPIB that he paid more than S$200,000 for additional improvement works.

Tenancy duration

Questions have also been raised publicly on the duration of the tenancies. Black-and-white bungalows are typically leased on a two- or three-year term, up to a maximum of nine years over three terms.

SM Teo’s report noted that the tenancy periods granted kept within the maximum. Tenants are generally allowed to renew their tenancies upon expiry unless the government has other plans for the site or the tenant has a poor track record.

Tenants who incur substantial capital expenditure for improvement works “will be granted a longer tenure, to enable them to amortise the expenses over a longer period”, said the report.

Amendment note: An earlier version of this story said Shanmugam paid S$61,400 for a car porch on top of additional improvement works that cost S$400,000. MinLaw has clarified that the S$61,400 is part of the S$400,000 he spent.