GOVERNMENT CLARIFIES AGO’S FINDINGS ON SENTOSA COVE LAND SALE
Sentosa Cove
2.Sentosa Cove is a unique development comprising not just condominium parcels, but also individual bungalow lots, hotels, shops and even a marina.
3.Based on past experiences, selling land in such a complex mixed development using the normal government methods would not achieve the best value. Sentosa Development Corporation (SDC) therefore formed a private sector company, Sentosa Cove Private Limited (SCPL), to undertake the land sale, adopting practices commonly used in the private sector to better meet market needs. These have proven to be effective, and Sentosa Cove has done well over the past few years.
4.However, Auditor-General found that such practices do not comply with the Government’s Instruction Manual (IM), which SDC as a statutory board has to follow.
Lapse in land sales procedures
5.There were three non-compliance incidents cited in the Auditor-General’s report.
Audit observation 1
6.For the first incident, 24 bungalow parcels were awarded to a sole bidder, Ho Bee Investments Pte Ltd, at a price below valuation. This tender exercise took place in November 2004, the year after the SARS outbreak. As it was the first en-bloc sale of bungalow plots, it was then unclear how much risk premium developers were prepared to bear for such en- bloc sites.
7.The SCPL thus made a commercial decision, which took into consideration the prevailing market sentiment and the fact that the bid price was still substantially higher than what SDC had paid the State for the land. In addition, being the first en-bloc sale, the valuation process may not have adjusted adequately for the higher perceived risks and uncertainties.
8.SCPL’s key consideration was to maximize the returns from the overall portfolio of land sites in Sentosa Cove, and not that of individual plots. What happened subsequently bears out SCPL’s judgement, as their decision to proceed with the award was followed by the steady build up of market confidence and sales momentum for Sentosa Cove.
Audit observation 2
9.The second incident involved the sale of 33 bungalow land parcels in August 2005 using an “Expression of Interest (EOI)” - an approach commonly practiced in the private sector. SCPL had sent a letter of invitation to all 170 REDAS developers to participate in this exercise, of which only 15 developers indicated interest and subsequently obtained the marketing brief and EOI kit from SCPL. These 15 developers were thus informed of the EOI details, including the award criteria as well as the subsequent extension of the deadline. This is similar to normal tendering procedures, where the practice is to notify only the registered prospects of changes in specifications.
10.In addition, in response to a specific query by some REDAS members during the EOI exercise, SCPL clarified, before the EOI deadline, that they reserved the right to make a counter-offer to the highest bidder should the received bids were below expectations. This was duly made known to all 170 REDAS developers on the same day that the query was received.
Audit Observation 3
11.The third incident involved a former board director who participated in an open tender for land sales at Sentosa Cove after he had retired from the SCPL Board. The tender was launched on 22 October 2003.
12.To put things in context, SDC and SCPL Board members are not disqualified from participating in Sentosa Cove land sales. It would not be fair or practical to do so since we had invited respected individuals with real estate experience to sit on the Board. Instead, to ensure transparency and fair competition, Board members wishing to participate in any sale of sites have to declare their interest in writing, and submit a confidentiality undertaking.
13.In this particular instance, the said director, Mr Chua Thian Poh, completed his term of duty as a board member on 31 Oct 2003. He was thus no longer subject to the disclosure requirement. Notwithstanding that, he declared his interest and submitted a confidentiality undertaking on 2 December 2003, and participated in the open land tender exercise that closed on 3 December 2003. Mr Chua’s company, Ho Bee Developments Pte Ltd, submitted bids for 4 land parcels, and won the tender for 2 plots, as it was the highest bidder (out of at least 3 bids for each parcel).
14.Following the Auditor-General’s observations, SDC has reconciled its sale practices with the requirements of the Government’s Instruction Manual (IM), and obtained MOF’s exemption from certain provisions. SDC will also further review and tighten the procedures for its Sentosa Cove land sales.
Ministry of Trade and Industry
6 Mar 2007