Evolution of the Public-Private Partnership Model

This 50-year journey, made not without trials and tribulations, reflects in many ways the successful public-private partnership, combining pragmatic government policies with the entrepreneurship of the private sector.*

The Government established the GLS programme in 1967. Since then, around 1,700 parcels of state land totaling more than 14,000 ha have been sold. The release of state land for private commercial and residential developments has been administered by the Urban Redevelopment Authority (URA).

However, the GLS programme was not initially designed as a conventional public-private partnership (PPP) model. The focus then was to expedite the government’s urban renewal objectives for the city centre. Sales of development sites were straightforward land transactions, often involving small single-use sites sold by the government to the highest price bidder. Real estate developers were generally under-capitalised and were allowed to pay for state land purchases via 10-year instalments, but they had to adhere to strict terms and conditions on what could be built on the sites.

This first wave of development rapidly transformed the skyline of Singapore’s central area. Developers then focused mainly on recycling their limited capital for the next project, resulting in developments that were built for short-term sales as strata-titled units and were dubious in quality and design. Some did, however, take a long-term view, working closely with reputable architects to realise developments with a high quality of construction and design. Some of these buildings survive today—OCBC Centre, the Regent Hotel and The Concourse were built on GLS sites sold in the late 1960s and 1970s.

• More recently, the government introduced a “master developer” model, allowing developers to apply a more holistic approach to large-scale integrated development projects. In this model, a master developer has far more discretion in the development process—from master planning, mix of uses, phasing and construction to asset management and sale of the completed projects. Large-scale mixed-use integrated projects such as Suntec City and Marina Bay Financial Centre (MBFC) could be considered as built by master developers. Kampong Bugis and Jurong Lake District are two new projects likely to adopt the master developer model.

From the policy perspective, how effective has the GLS programme been in delivering desired outcomes? What are the learning points in comparison with the real estate PPP experience elsewhere? We suggest five lessons that can be drawn from the PPP experience in Singapore and other cities.

Lesson 1: Aligning the interests of public and private sectors.

The alignment of interests is a key success factor in any partnership. Take the examples of Suntec City, which was built by a consortium of 11 Hong Kong developers; and MBFC, which was built by a consortium of three large local and Hong Kong developers. Both projects were intended to meet the government’s specific “hard” objectives. Suntec City was intended to create a large-scale exhibition and convention facility that was missing in the city centre. MBFC would supply modern premium office space in the central business district (CBD) to give Singapore a competitive edge as a global financial centre.

Although both projects achieved their hard objectives, the longer term interests of the developers and the government were not entirely aligned. This was particularly evident in the case of Suntec City where a large portion of strata-titled office space was sold shortly after completion, an indication of the developer’s prioritisation of short-term profits. The sale of office space reduced the developer’s holding risks, but also diluted its long-term commitment to ensuring that the project is well-managed and maintained over the duration of the lease.

Misalignment of interests between the public and private sectors can be a major cause of failure. This could be seen in the collapse of the original developer of Canary Wharf, a 29-ha development project started in the mid-1980s to create a new commercial district close to Central London. London Docklands Development Corporation, an agency set up by the UK Government to develop
the Docklands, required Olympia & York to incur huge capital outlays based on a rigid schedule. This became a key reason for its subsequent collapse in 1992, when this coincided with a major market downturn. The development was taken over by Canary Wharf Group, which was able to take advantage of the subsequent strong market recovery and growing demand for modern office space with large floor plates in the mid-1990s. The district has since established itself as a thriving alternative commercial centre to the City of London and is on track to accommodate a working population of 200,000 by 2025.

In the case of the Melbourne Docklands, the 190-ha area of land and water adjacent to Melbourne’s CBD was to be developed by Docklands Authority (now Development Victoria), but at no cost to the state. Instead, the private sector was expected to fund all design and infrastructure works. This led to the project being overly focused on commercial imperatives in the initial development phases in the early 1990s, which required additional works years later to remedy the lack of community vibrancy.

Similarly, it is critical that each side in the PPP delivers on its promises. The UK government delayed approving the extension of the Jubilee Line to Canary Wharf. Given the general public’s negative perception of the Docklands at the time, the limited accessibility was an added deterrent to prospective tenants and contributed to the collapse of the original developer. The extension of the line was only completed in 1999.

Developers, especially those with access to long term capital, can and do take a longer-term perspective. The Canary Wharf Group pursued a long-term strategy—it is still developing Canary Wharf since it acquired the development more than 30 years ago.

Lesson 2: Sharing risks and profits.

The implementation of all real estate projects, especially large and complex ones, entails substantial risks for both the private and public sectors. These risks include changing business cycles, volatility in supply and demand, interest rate hikes and increases in construction cost. Governments can help mitigate risks for developers; this, in turn, raises their willingness to pay a higher price for a development site. This way, the sharing of risks between both parties can produce win-win outcomes in PPP projects.

In Singapore, the GLS programme has used various risk-sharing methods in large scale PPPs, such as the development of the integrated resorts at Marina Bay, the MBFC and Suntec City. These methods include instalment payments for the land purchased, option pricing, fixed land price tenders and assurances that the release of other GLS sites will be carefully calibrated to prevent an oversupply of office and retail space. Such risk-sharing helps to reduce uncertainties and hence, risks, for private developers.

However, profit-sharing between the public and private sectors, though common in other countries, has not been adopted in Singapore. Profit-sharing can take the form of sharing of revenues generated by the development, or a splitting of the capital gains reaped when the development is sold. Over the long term, a profit-sharing arrangement can be a more effective mechanism to align the interests of both sectors, because each partner is incentivised to focus on the sustainability of the revenue streams and the viability of the project.

Lesson 4: Set realistic terms and targets for both public and private partners.

Setting realistic terms and targets is necessary to build a successful PPP in real estate projects. Open and consistent communication between the parties is the key to ensuring fair, consistent and productive results in PPP projects.

For instance, in the MBFC project, the government recognised the complexity and scale involved and gave the master developer a more flexible timeline spanning 10 to 18 years to complete the entire project, as compared to the typical project completion period of five years. If the original developer of Canary Wharf had been allowed to build incrementally in response to changing market conditions instead of having to meet rigid targets, it might have been able to survive the market collapse in the early 1990s.

Lesson 5: Make space for private sector innovation.

The GLS model has evolved over the years to become more flexible by giving wider discretionary rights to developers, particularly with respect to large development sites. This has resulted in the successful completion of many green-field developments built to the highest international standards. On the whole, however, Singapore’s approach has traditionally been more prescriptive compared to our overseas counterparts. An overly prescriptive and rigid approach may inhibit the adoption of new ideas and innovations.

In the overseas examples, greater participation by the private sector has often produced successful outcomes that meet both public and private sector objectives. They also illustrate the private sector’s attributes of pro-activeness, entrepreneurship and high-risk tolerance that can be channelled through real estate PPPs. For example, Canary Wharf Group was directly involved in the funding and construction of Canary Wharf’s Crossrail Station. It helped to improve the public transport infrastructure while protecting the group’s long-term interest by enhancing accessibility to the district.

In China, the leading residential developer China Vanke Co. rehabilitated an urban village in Futian, Shenzhen. Emerging in China as urban sprawl encroached on rural areas, urban villages typically comprise poorly constructed mid-rise housing blocks with units often rented to the floating population of migrant workers. Vanke introduced innovative approaches such as master-leasing the apartment blocks from the villagers and upgrading them into affordable co-living units targeted at young professionals.

Another innovative feature was a Vanke-designed mobile application to manage the rental process. By removing urban blight, improving building structural safety, enhancing property values and creating new business opportunities, this project has created win-win outcomes for the private sector, villagers and the local government.

In comparison, the highly competent public sector in Singapore often dominates a PPP project. It assumes the functions of planning and delivering infrastructure and public services, and specifies urban design and planning guidelines in GLS projects. Despite an increasingly sophisticated and well-capitalised real estate sector in Singapore, the private sector has generally played a passive role focused on complying with an extensive list of urban design and planning guidelines. In this context, the government’s recent moves to introduce the master-developer model and the “business improvement district” signal a greater role for the private sector in the development and management of real estate projects.

Retooling Singapore’s PPP Model for Future Challenges

Although Singapore’s PPP model for real estate development has proven effective, future challenges will require solutions that are co-created with the private sector. For one, the twin demographic challenges of a rapidly ageing population and declining birth rate will put tremendous strain on the country’s finances as more public funds are allocated to housing, eldercare and healthcare facilities.

The private sector can be an alternative source of capital for such facilities through its participation in PPP projects. For example, the concept of integrating senior housing, healthcare, amenities and inter-generational interactive space in a single complex like the publicly funded Kampong Admiralty could be offered as a PPP project instead, provided the right incentives are put in place for developers.

Notes

*Seek, N.H., Sing, T.F. and Yu, S.M, Singapore’s Real Estate — 50 Years of Transformation (Singapore: World Scientific Publishing Co. Pte. Ltd, 2016), 3.

^Michael Koh, “Master Developer Projects in Singapore: Lessons from Suntec City and Marina Bay Financial Centre,” 2018, Centre for Liveable Cities, Singapore, (paragraph 9 of page 6).

About the Author

Dr Seek Ngee Huat is Chairman of the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS), where he is also Practice Professor of Real Estate. He is Chairman of GLP IM Holdings Ltd., and a board member of Brookfield Asset Management Inc., Canada and the Centre for Liveable Cities. He is also a senior advisor to Frasers Property Ltd. and the Canadian Pension Plan Investment Board.

He was previously the Chairman of Global Logistic Properties Ltd., Chairman of ULI Asia Pacific, President of GIC Real Estate Pte. Ltd. and board director of GIC Private Limited. Before joining GIC, he was a Senior Partner at Jones Lang Wootton in Sydney.