Friday, November 08, 2013

A ransom price on top of market rentals

Some people argue that it is best to leave matters to the free market. This is the PAP approach that has been prevailing for the past 30 years, ever since LHL was active in the Government.
While the free market has its merits, it also has it serious flaws. It does not recognize the rights of the tenant. On renewal, the landlord can impose a ransom on the renewal terms. The tenant had already invested in the renovation of the shop or stall and had spent time to build a business. The tenant had to pay a price that is higher than the true market.
Sometimes, another tenant may offer a higher rental rate, with the purpose of "killing off a competitor".
This situation leads to rental being higher than the true market, and over time, leads to escalation. When a tenant moves to a new location, there is additional cost in rebuilding the business. This is what I called "wastefulness".
Wastefulness has been a part of the Singapore system for several decades. It has lead to high cost of doing business and high cost of living. We are now no longer competitive globally.
We are misled by the statistics of multinational companies setting up operation in Singapore. In many cases, there are given tax incentive, land at special rates and government grants. These are not publicized. They show good figures, but hide the fact that our costs have gone out of hand.
If we do not recognize the real problems in Singapore, and continue to delude ourselves, things will continue to get worse.


yujuan said...

Alarming to see many reits owning many commercial properties, the main cause for ever increasing rentals SME tenants have to bear, who then pass the costs to their consumer clients, the ordinary citizens. High rentals and COE transport costs lead to our high cost of living and internal inflation.
But many listed reit Companies have Temasek Holdings as their main shareholders, could say this SWF is milking citizens to enrich itself.
Still, some people are betting Govt would enforce some form of control on reits, then it may be prudent for smaller shareholders to trim their holdings, particularly on reits not related to Temasek.
Better to skip investing in reits, both listed or new IPOs. How long could Govt continue to prop up property prices and reits rentals.

yujuan said...

Reits investors must keep watch on Temasek Holdings' moves, this SWF already offloaded its entire Keppel reits, and Keppel has habit of giving out dividends in situ in Keppel reits, instead of cash.
It's an alarming observation, if Temasek offloads another one or 2 more of Reits holdings, then we could assume Govt is ready to expand cooling measures on commercial properties too. But Temasek must cash out its reits holdings first.
Keppel Corp investors slapped with unwelcome Keppel reits in situ are incensed now.

Xianlong said...

Hi yujuan,
Thanks for your heads-up on Temasek offloading Keppel reits. All the while i consider REITS a dangerous investment vehicle.

Depressed wages don't sustain buying power. The situation is already dire in the hdb heartlands with those half-half shops of a regular 1 unit shop.

Most foreigners are just here to earn & save as much as possible for a good life back home. They are not a source to be relied on in terms of buying power.

Blog Archive