Sale of state land doesn't result in net increase to reserves: Indranee Rajah answers Leong Mun

The question of land sales for HDB development, and whether the government increases its reserves when state land is sold, was answered on Nov. 7. No, reserves do not increase when state land is sold, as the physical asset is merely converted into a financial asset, Second Minister for Finance and National Development Indranee Rajah explained. Question on impact on reserves when state land is sold Non-Constituency Member of Parliament (NCMP) Leong Mun Wai of the Progress Singapore Party (PSP) asked whether there is a net increase in the past reserves when state land is first sold, and the sales proceeds are transferred to the financial assets, and when the land is sold again after reverting to the government’s ownership upon the expiry of its lease. In response, Indranee began by setting out the relationship between state land, land sale proceeds and Singapore's reserves. In Singapore, all title to land is derived from the state. Interests in land, such as leases, can therefore be carved out by the state and granted to others. The leases confer ownership and possession of those lands to other persons, but only for the duration of the lease. The state retains the interest in the balance of land not leased. Under the Constitution, all state land forms part of the reserves. When state land is sold, the physical assets are converted to a financial asset. Example of the relationship between the sale of land and the reserves Indranee used an example - if the government sells a parcel of state land at its fair market value for S$1 million, it no longer has the land (for the term of the lease). However, the government now has S$1 million, and there is no net increase in the reserves. "We have merely changed the physical land in our reserves into an equivalent amount of financial reserves. There is no new value created and hence no addition to the reserves," she said. Financial reserves are invested The cash now forms part of the financial reserves, which are invested, she said. The government uses up to 50 per cent of the long term expected real returns on the investment every year in the annual Budget. This amount is known as the Net Investment Returns Contribution, or NIRC. It strikes a balance between the needs of current and future generations of Singaporeans, Indranee said, preserving the real value of the reserves and ensuring a "rainy day fund" in the event of a future crisis. Indranee next addressed the question of land that has been sold. As the state holds the ultimate title to the land, it ultimately reverts to the state once the 99-year lease is up, it becomes state land once more, and will be protected as part of the reserves. When that occurs, there is also no net increase to the reserves. "This is because the reversionary interest in that parcel of land had all along formed part of our reserves. In other words, the financial proceeds that we had earlier received was to make up for the state's loss of use of the land for 99 years, and not for the state giving away the land forever." Indranee said that there is no net increase in reserves when state land is sold, as it is a conversion of physical assets to financial assets, and there is also no net increase in reserves when state land goes back to the government, as the value of the lease does not include the reversionary interest. Indranee added that there is again no increase in the reserves when the land which was returned to the government is sold again. This is because it is merely a conversion of one form of asset to another. However, the reserves do increase when the government invests its money and grows the financial assets held by the state. Second question on so-called "triple payment" In another question, Leong also asked whether Singaporeans are paying: The cost of state land used for public housing when initially acquired by the Government. The difference between the higher land cost when the land was purchased by HDB for development, and that which the Government initially acquired the land for. Taxes to cover the shortfall incurred by HDB from the land cost paid to past reserves at full market price, thereby amounting to "triple payments" for use of state land that are developed into HDB flats, if the land acquisition and development occurred in two different terms of government. Indranee also addressed this, saying there is no triple payment by Singaporeans for the land used to develop HDB flats. From time to time, the government may need to acquire land for public housing, which is compulsory. First, the government acquires the land and comp

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