Tuesday, 6 May 2008

One Committee to Rule Them All: Management Committees and Sales Committees

Back in Jan 2007, I blogged about the potential conflict of interest when a member of the Management Committee (MC) is simultaneously a member of the Sales Committee (SC) in an estate (you can read that here). I wrote (and I repeat): "The mandate of the MC is to maintain or update/upgrade the development whereas the mandate of the SC is to sell off the development in whatever condition it is in, as quickly as possible".

Over the last few days, two condominiums over at the East Coast have fully realised the consequences of this conflict of interest, when their MC contains pro-sale members, or SC members. You can read about the troubles brewing at Mandarin Gardens and Bayshore Park here , here and here.

These conflicts of interest are not illegal. In fact, the LT(S)A's Third Schedule only requires that a member of the SC discloses his/her indirect or direct interests in "any property developer, property consultant, marketing agent or legal firm, being an interest that could conflict with the proper performance of his functions as a member of the collective sale committee" (Third Schedule LT(S)A, Sect 2). So from the side of the SC, so long as the member is not involved with any of the stakeholders in the sale, it's alright. On the side of the MC, the BMSMA states that so long as the member of the MC does not have any "pecuniary interest, direct or indirect, in any contract, proposed contract or other matter which is before any meeting", it is alright as well. Nowhere in the law does it require that the member of the MC must declare and remove him or herself should s/he have any direct or indirect interest in a collective sale process. The consequences are felt at at least 2 estates now, and I'm sure countless others unreported in the media. The government needs to realise this is happening and do something.

How many of you undergoing enbloc sales have a member of the SC that is also in the MC? I've already stated in my Jan 2007 blog why this works so well in lubricating the sale process, so it's almost natural for the pro-sale group to have a member in both SC and MC. I have one in my own ex-estate - the Chairperson of the MC is the Chairperson of the SC. I can only hope that any estate involved in an enbloc sale, do their best to ensure that a member of the SC cannot be a member of the MC, and require that he/she withdraw him/herself from the MC once they are elected into the SC.

I've started a poll on this matter. Feel free to pitch in.

Previous poll results are (rank ordered):

Why are you a stayer?
My home is more than just about money: 18 (52%)
My right to a home should be sacrosanct: 17 (50%)
I love my neighbourhood: 16 (47%)
My home is a part of my identity: 9 (26%)
I'm not offered enough money: 7 (20%)
Pragmatic reasons (School, Church etc): 7 (20%)
I'm too old to move: 0 (0%)
Total voted: 34

It would appear that the top 3 reasons for people choosing to fight against an enbloc of their homes, is that they believe that their home extends beyond its value as a financial asset, that they should have the right to keep their homes, and because of the neighbourhood they live in. These are three really important reasons that unfortunately the government has chosen not to factor at all into their policy making process. A pity. Because these are the three most important reasons that establishes one's identity and affiliation to home and nation. Any wonder why some of the comments on my previous post suggests strongly that I should emigrate elsewhere, where there's less likelihood of my home undergoing enbloc?


Anonymous said...

HI Dr. Minority,

Conflict of interests in a small country is inevitable , just as 'cronism' and nepotism will continue to negate transparency and accountability in several aspects of public and private life all over the world in varying degrees.

Due diligence is a process that has to be inculcated in a system that operates with effective checks and balances, where the citizenry appreciates , understands , promotes, practises and protects such a system. The law can only do that much even with the best legal crafting, there need to be effective machinery to execute them by a pool of ethical leaders.

Conflict of interest is inextricable in this piece of legislation , starting from the very rationale that motivates its promulgation. What purpose does it truly serve?

MCs, SCs are all from the same pool of residents divided in their categories of pro-sale, fence sitters and anti-enbloc. Without fail the pro-sale block would be the one with the clearest advantage and motive to want to sell and will actively promote it.

The anti -enbloccers are a pariah group which are forced into a position by default. The law is stacked against them because the very premise of the legislation is to facilitate the sale , the active proposition that already by its very promulgation forged an overwhelming bias.

The only thing that the government did not anticipate was the furore with which the public reacted to the law .It basically underestimated its far reaching consequence.

As Nassim Taleb in his bestseller book 'Black Swan' pointed out in a recent conference with Wall St. gurus, he began his trademark attack on Gaussian statistics, named after 19th-century German mathematician Carl Friedrich Gauss, who charted probabilities on a bell-shaped curve. In a bell curve, high-frequency events are represented at the top, or middle, and infrequent episodes are charted on the edge, or tail, of the curve. The tail is usually thin, reflecting rare, low- impact events.

Gaussian statistics might work in casinos, but it can't accurately help calculate stock market valuations, Taleb argued.Sounds familiar with our condominium pricing does it not??

"With stocks, we don't know if we're overpaying," he told the audience. So what theory are we using to value our condos?

"No self-respecting statistician in finance is using Gaussian statistics," interjects Lord John Eatwell, an economist and president of Queens' College at Cambridge University, who's sitting in the back. "All models are Bayesian," he says, referring to the theory derived from 18th-century British mathematician Thomas Bayes that allows for data to be constantly added to calculate probabilities.But Bayesian theory is not enough to predict the unpredictable claimed Nassim! Hence the Black Swan surfaces to destroy the predictions of all probabilities.

NO one could predict what can happen twenty years ago when we bought our first home and no one can predict what will happen to Singapore 50 years or 100 years from now, but whatever it is, how significant is this enbloc furore if a huge wave of tsunami collapses everything we own, or the sea level submerges all that we have on this dot of an island.
How important is conflict of interest be it MC and SC being the same pro-sellers, or agents and lawyers who are in conflict of interest with our interest as owners ?

What then is the true value of our property ?

Are we to value it with emotional attachment, fiscal value against the present economic trend , against opportunities lost or gained, cost of move and replacement of like for like?
Do we truly need a population of 6 million on our tiny island?

Or has this piece of legislation a hidden agenda?
A great social escape to allow ageing Singaporeans to take value out of their old condo and go forth to buy our neighbour's assets, retire abroad preferably in a country that has a great FREE NATIONAL HEALTH SYSTEM so that the aged could be exported.

Are we encouraged to emulate the govt.'s GISC and Tumasek arm ,as sovereign investment trusts investing our wealth abroad , spread the risk and pick up some undervalued properties in this credit crunch?

Wealthy Singaporeans have done that, expanding their private property portfolio all over the world, so now it is the turn of the displaced condo-less Middle class.
Mobility ,adaptability ,
recyclability- are the survival skills of a global nomadic race which we have been constantly conditioned to.

Just thinking outside the box, or in this case more like dismantling the box.

Anonymous said...

enbloc has got no meaning.

Anonymous said...
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Anonymous said...

There is a social cost to enbloc especially if older citizens are uprooted from their neighbourhood. They find it hard to adapt to a new environment.Rather than buy into another neighbouthood, they may move overseas to join their children for those who have children overseas. For those with no children overseas, they may move to other countries rather than STAY IN SINGAPORE WHICH IS TOO COSTLY!Malaysia has this "second home program" which has already attracted many Japanese, Koreans and other nationalities!

Anonymous said...

What about Pender Court and Tulip Gardens? Can the owners sue them for not pushing through with the sale?

Anonymous said...

"What about Pender Court and Tulip Gardens? Can the owners sue them for not pushing through with the sale?"

If the owners have signed the CSA, no they can't sue the SC. The SC are indemnified and not liable, courtesy of the CSA that protects their butts.

Anonymous said...

Don't know the detail contract of the Tulip garden ...but in contract law, there is such thing as Specific performance..

IF all requirements are met , including the percentage and price , but the Developer cannot deliver or complete the sale as per the contract, then there is definitely grounds for suing as sellers under contract law.
Not all written indemnities are foolproof or full proof. All it needs is a team of smart lawyers to argue and research on obscure aspects of the law and loopholes .
That is why creative lawyers are expensive.