No net increase to reserves when State Land is sold: Indranee Rajah explains


There is no net increase to Singapore’s reserves whenever State Land is sold. This boils down to State Land being a physical asset, in the same way that State cash, securities and bonds are financial assets.

If anything, the Government invests this land sale money for Singapore’s benefit.

Second Minister for National Development Indranee Rajah explained the economics of this transaction during Monday’s (Nov 7) Parliament session.

“When we sell State Land, we convert the physical asset into a financial asset,” she said, in response to a question by NCMP Mr Leong Mun Wai on whether there is a net increase in the past reserves when state
land is first sold.

“For example, if we sell a parcel of State Land at its fair market value of, say, S$1 million, we no longer have the land for the term of the lease sold, but we have S$1 million,” the Minister added.

“There is no net increase in the reserves.”

“We have merely changed the physical land in our reserves into a distributed amount of financial reserves. There is no new value created and hence no addition to the reserves,” she said.

Fair enough. What happens to this cash and this land though?

Cash — Net Investment Return Contribution

The Government stewards the cash wisely, investing it for bettering Singapore.

“The S$1 million cash now forms part of our financial reserves, which the Government invests (for example through GIC) to grow for the benefit of Singaporeans,” said Minister Indranee.

“We use up to 50 per cent of the long-term expected real returns on the investment every year in our annual budget. This amount is known as the Net Investment Return Contribution or NIRC.”

And the other returns get reinvested.

“The rest of the actual returns — that is, 100 per cent of the actual returns minus 50 per cent of the long-term expected real returns — is reinvested. This rule strikes a balance between the needs of current and future generations of Singaporeans,” said the Minister.

“It preserves the real value of our reserves and assures us of a rainy-day fund in the event of future crises.”

Land — factored into this investment cycle

The land automatically reverts to the State once the 99 years is up — the State holds ultimate title to the land after all.

“It then becomes State Land again, and will be protected as past reserves once again. When that happens, there is no net increase in our reserves either,” stated Minister Indranee.

“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 the land away forever.”

The same process applies if the Government then carves out another lease of the same land and sells this land on the fresh lease.

“Again, it will be a conversion of a physical asset to a financial asset to make up for the State’s loss of use of the land for that period of said carving-out,” said the Minister.

“A careful and prudent management of our reserves” 

And to ensure that people have more clarity about what happens when State Land gets sold, Minister Indranee summed up this process point-by-point.

“A: There is no net increase in the reserves when State Land is first sold and the sales proceeds are transferred to the financial assets. It is just a conversion of one asset form to another,” she began.

“B: There is no net increase in the reserves when the land returns to the State after the lease expires, as the value of the lease did not include the value of the reversionary interest;

“C. There is again no increase in the reserves when the land which was returned to the Government is sold again. As before, that is merely a conversion of one form of asset to another;

“D: There is an increase in reserves when the Government invests and grows the financial assets. This is the outcome of careful and prudent management of our reserves by this Government and should not be taken for granted,” Minister Indranee concluded.

It shouldn’t indeed.

The land will not do much for Singaporeans when it’s just left unsold. But converted into liquid cash at fair market value, it helps appreciate Singapore’s reserves indirectly and eventually for the next generation.

This, in turn, translates into more benefits —  like public works and financial grants — for Singaporeans. It builds Singapore into a place where we all get to live, work and play.

Cover photo credit: SLA and Mediacorp