Monday, November 17, 2008

8 out of 14 PAP Town Councils have exposure to Lehman Brothers

Updated 18 Nov 2008: Added returns figures from the newspaper

I've written a post last year with regards to Holland-Bukit Panjang Town Council investing our money in the stock market, in particular in Creative. Now it seems that they did not learn from that lesson and went up 1 step further. They started investing in structured products!

Holland-Bukit Panjang and Pasir Ris-Punggol town councils have invested a total of S$12 million in DBS High Notes, Lehman Brothers' Minibond Notes and Merrill Lynch's Jubilee Series 3. Other town councils such as Aljunied, Ang Mo Kio-Yio Chu Kang, Hong Kah, Marine Parade, Tampines and Tanjong Pagar also have exposure to Lehman Brothers.

It was stated that it's a small percentage of the total funds available. However other than the question on why on earth a town council will invest their sinking funds into structured products instead of thinking of ways to rejuvenate the estate or to subsidize the conservancy charges, my main question is why did the town councils have so much money? And if they have so much money, why did they use the excuse of inflation to increase our conservancy charges??

The whole idea of a town council is that its not meant for-profit. It's suppose to be a non-profit organisation since the money comes from the general public. Therefore, if there's surplus, the benefits should flow back to the general public. With so much funds available, just by putting it in a simple highest rated bonds and fixed deposits would yield a decent return.

Worst still, based on what was reported in the newspapers, the returns averaged over 3 percent a year over the last 6 years, excluding the Lehman fiasco. 3%! Investing in equities! Considering the risk premium, why on earth would you take so much risk to get a return of 3% in equities when you can get the almost equivalent using bonds and fixed deposits?? Come on... I think even Singapore millionaires can get more than 3% on their deposit accounts.

According to the newspapers, they say that they need to build up their sinking funds to replace the lifts every 28 years. Hello... I compound $150million a year with interest of 3%, I get a total of $343million at the end of 28 years. Even compounding $75million a year, I get a total of $172million at the end of 28 years! Each lift cost only at most $250,000. How many lifts do you have in a HDB block?

There should be a cap on the amount of sinking funds the town council should have. What's the use of having so large an amount if the benefits do not flow back to the general public? The famous Holland-Bukit Panjang Town Council seems to have $120million in the sinking fund, based on reported 6.7% invested in the structured products ($8 million).

Having surplus is one thing, but this is getting ridiculous. Is it so hard to use the money the general public has given to rejuvenate the estate, or to reduce our conservancy charges that we must pay?

Why on earth did they have so much in their sinking funds?? Scrooge McDuck??!?!?!


Anonymous said...

Gosh, the total reserves of the Town Councils now stands at $2 billion. That's staggering. They should reduce the conservancy charges, in this difficult time.

3% average returns is measely indeed. Compared to fixed deposits of 0.9% it looks good, but for goodness sake there are banks that offer much more than that if you check around. But they seemed to be proud of that, so what can we say.

But not to worry, the state media will know how to whitewash the blemish. Thank God, Hougang and Potong Pasir were not involved, otherwise, I dread to read the headlines in the state media.

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Anonymous said...

"What's the use of having so large an amount if the benefits do not flow back to the general public?"

that's the bottom line. they are run like singapore and its reserves. keep and keep and keep supposedly for rainy day, but somenow rainy day never comes and money never seen once taken from us.

chantc said...

I did not expect anyone to take note of my ramblings. This corner is just a place for me to vent some of my frustrations.

I'm actually more concerned about the total amount of money in the sinking fund. How did the town councils amass a $150million sinking fund? That's alot of money.

And yet in some estates, we can see that dead rats can be left for weeks without anyone clearing, cleaners wasting water instead of cleaning the car parks, lights spoilt making the whole area dark, etc...

Are we saving so much money for the wrong reason?

Invest in Singapore said...

When the sinking fund takes much more than it is required to daily and routine maintenance, it is a sign that it has taken too much.

In other words, it has charged you more than it should in conservancy fees in building up such a huge surplus. It is useless to tell the people that the country and the town council is so great for amassing such funds as the people struggles with daily living.

Just my thoughts.

chantc said...

GRCs has grown too big for its own good. In the end, all the economies of scale for GRCs did not translate into lower conservancy charges. I still remember not too long ago, some MP even remarked that conservancy charges should be linked to an inflation index (our current inflation rate for this year is close to 7%).

It just makes me wonder. Who is short changing who?

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