In Part 1, we outlined what TWC2 would like to see as design principles for better dormitories for migrant workers. Within the article is a sketch of a floor plan on the basis of 7.5 square metres per person. This represents a 67% improvement over the present minimum of 4.5 square metres per person in our building codes, which is manifestly inadequate.

Readers may wonder what a raising of the minimum to 7.5 square metres implies in terms of cost.

What we’d point out is that mere floor area alone is only one of many factors that go into cost, and there are ways of looking at and adjusting other factors that can make a big difference.

The example of Tuas View dorm

A November 2016 article about Tuas View dorm in the magaizine Edge Property contains some interesting details about costs. Tuas View claims a capacity of 16,800 beds on its website.

The dorm operator tendered for the site in 2012 and got a lease of only 3+3 years (total six years). This period includes the construction period, so the actual operating period of the dorm would be perhaps five years. The article quoted Shamkumar Subramani, CEO of TS Management Services, as saying.

Most of the other dormitory sites up for tender were on smaller sites with leases of 3+3+3 years or 20 to 23 years.

The monthly rent is $1.16 million, paid to JTC, the government body in charge of industrial land. It is not stated in the article how many other bids there were for the same plot and what the other bids proposed.

By late 2016, the date of the article, they were in the second 3-year period.

For now, there is no option for another three-year extension on the site. This means that, at the end of the lease, the facility will be torn down, and the site returned to JTC.

(However, since the dorm is still operating in May 2020, we can assume that there was ultimately an extension. See footnote 1.)

A total of $60 million was spent to build the dormitory. The article explained that, based on a straight-line depreciation of the building cost over a six-year period, “the monthly cost translates to $833,333.”

Six years is very short for a lease. JTC often gives out 30+30 year leases for industrial land. Even HDB flats’ leases are 99 years,  so it is rather exceptional why Tuas View got only 6 years. That said, it may not be that unusual for large dorms.See footnotes 2, 3  and 4 for further discussion of lease periods for other dorms.

The duration of a lease is a key factor in determining the annual or monthly depreciation cost. If Tuas View had been given a 30-year lease, it could depreciate its building cost over that period — provided the building could reasonably be expected to last 30 years — and arrive at a monthly depreciation of $166,666 per month (a mere one-fifth of its current monthly depreciation of $833,333).

TABLE 1

Cost element per month Based on 6-year lease Based on 30-year lease
Rent $1,160,000 $1,160,000
Depreciation (on $60m capital cost) $833,333 $166,666
Total fixed costs for property $1,993,333 $1,326,666
Per resident (16,800 capacity) $118 $79

Supposing we expected a dorm like Tuas View to be built to our proposed higher standards, at 7.5 square metres per person, which is 67% more floor space per head. Very roughly, it might have cost 67% more. Since the cost it actually incurred was $60 million, so hypothetically, building a dorm to our higher standard might cost $100 million. Monthly depreciation would obviously be higher.

These would be what the figures become:

TABLE 2

Cost element per month Based on 6-year lease Based on 30-year lease
Rent $1,160,000 $1,160,000
Depreciation (on $100m capital cost) $1,388,888 $277,777
Total fixed costs for property $2,548,888 $1,437,777
Per resident (16,800 capacity) $152 $85

Look carefully between Tables 1 and 2 and you’d notice that a better dorm on a 30-year lease would imply a monthly capital cost per resident of $85, which is less than the current capital cost per head of $118 (based on a 6-year lease).

The lease period makes all the difference!

Other cost factors need looking into as well

Capital costs aren’t the only costs. There are also running costs, such as administration, sanitation, repair and maintenance. Generally, these would be proportionate to the number of residents, and should not be much affected whether we build 7.5 square metres per head or 4.5.

The article in Edge Property mentioned that

According to Shamkumar, the monthly operating cost per worker is about $50.

Nonetheless, there may be areas where operational running costs can be reduced, and once again, a critical look at these areas may reveal the government’s hand in them.

A paragraph in the Business Times story of 4 April 2016, headlined ‘Dorm operators get more creative’, gives us a clue. It says:

Under the Foreign Employees Dormitories Act (FEDA), operators of dormitories that can house 1,000 or more foreign employees need to obtain a licence from the Ministry of Manpower. DASL’s Mr Lee says the licensing framework imposes a range of security, safety, and public health requirements that include computerised access systems and provision of sick bays. Licensed operators are also required to provide social, recreational and commercial amenities, and facilities such as a gym, minimarts, a canteen, TV rooms, and wifi.

Three requirements there strike us as superfluous.

Gym — why do we need to insist on gyms when dorm residents typically do physical work day in and day out?

TV rooms — migrant workers universally (or almost universally) have smartphones, by which they access the social media and entertainment programmes they like. In all these years, we have yet to know a migrant worker who watches any local TV channel.

Computerised access systems — the purpose-built dorms are built with a strong emphasis on security features. These innocuous words, “computerised access systems” means electronic cards and turnstiles and plenty of surveillance cameras. These, together with the cost of hiring security guards round the clock, must represent a very significant capital and operational cost.

What’s the point of putting in so many security features?

Yet, what is all that security for? Are the residents in dorms so wealthy, and their bedspaces so full of valuables that burglars would want to get in? If not, then might all that security be meant to stop residents from getting out?

How can that be? Workers have to go in and out to work anyway. Dorms are not prisons, yet it seems our government wants them designed and run as such. One wonders if there is some unstated notion of foreigners being security risks such that there has to be ready ways to lock them all in at the touch of a button. If so, then it seems perverse that the cost of all that security is being borne by dorm operators who then pass it on to employers and the workers themselves in the form of rent.

Do prisoners have to pay the full cost of building and running prisons?

Readers may argue that the prison-like design has proven its worth during the pandemic when we needed to securely quarantine dorm residents.  Yet, this facile argument is easily disproven:

Only 200,000 migrant workers live in these licensed dorms. Another 120,000 live in all sorts of medium or smaller dorms that do not come under the licensing framework and thus are not required to have the same standard of surveillance or security. They still managed to quarantine their residents when ordered to do so.

Then perhaps another 200,000 –  300,000 Work Permit holders don’t live in dorms at all. They live in rented rooms and apartments all over Singapore. There is no one to control their movements. And here’s the kicker: This group of Work Permit holders have very low infection rates, nothing at all like in the dorms.

So what good has all that expensive security demanded by license conditions (and imposed only on licensed dorms) achieved?

Instead, it has just burdened dorm operators with costs, which are then passed onto employers, who in turn take it out of workers’ salaries under one guise or another.

The whole issue of accommodation cost thus cries out for analytical deconstruction. What remains is the very big role played by government decisions and actions. A critical look at this role might lead us to a much happier outcome: it is possible to have far better living standards for workers without costs going up much.

Go back to Part 1.

1. One implication of Tuas View getting a lease renewal after 3+3 years is that the property should now be fully depreciated. So its cost base should now be $50 less per resident — $50 being its monthly depreciation per resident during the first six years.

The 2016 article in The Edge Property said that “While operationally profitable now, the return on investment’ is not as lucrative as we had initially projected’, concedes Shamkumar.” It had earlier mentioned an average monthly rent of $250 per worker — so it was profitable at $250.

With depreciation fully accounted for, the profit situation must now be vastly improved. It could well be rolling in money now.

Possibly it now may have to pay a higher monthly rent after lease extension. But then, TWC2’s observation is that $250 per worker is no longer the prevailing rent at purpose-built dormitories either. It has gone up. As mentioned in this article (8 May 2020),

The rental rate for a space at Tuas View is in the range of $250 to $300 a month.

If the government has increased the monthly rent, we think the dorm operator would have passed it on.

2. From this page (dated 7 January 2020), we get a listing of Centurion Corporation Ltd’s dorm properties in Singapore and their periods of leases, shown in Table 3. It is worth noting that Centurion only went into the worker accommodation business in 2011, so those properties with leases starting before that were probably originally meant for other uses. There is a pattern: the newer the lease, the shorter the period.

TABLE 3
Dorm Bed capacity Land lease tenure Start of land lease
Aspri-Westlite Papan 7,900 23 years 2015
Westlite Toh Guan 7,800 60 years 1997
Westlite Mandai* 6,300 Freehold
Westlite Woodlands 4,100 30 years 2013
Westlite Juniper 1,900 10+5 years 2019

*Joint venture with Lian Beng. Centurion’s 2019 Finanacial Report states that for buildings on freehold land, which the Mandai dorm is, depreciation is calculated on a straight line over 50 years.

3. From this article dated 8 May 2020 in Edge Property titled ‘The next-generation foreign workers’ dormitory’, there is this information about a new dormitory Pioneer Lodge with 10,500 beds. The site comes with

a monthly rent of $724,500 and BCA administration fee of $58,500 a month. The lease on the land is for three years from October 2019 to September 2022, with the option to renew for another 3+3 years.

Thus, the total lease period is for nine years, which includes the construction period.

BCA stands for Building and Construction Authority. Why is it now taking a cut too?

4. TWC2 heard that the lease tenure for S11 dormitory in Pungool is even shorter or more tenuous than the lease for Tuas View, but we have not verified this information.