Despite problems, it's still best for malls to stay in private hands

THE recent challenge faced by the Singapore government in getting retail landlords to pass on property tax rebates in full to tenants has begged the question of whether retail space in Singapore is better off in private or public hands.

While the hypothetical scenario of a "nationalisation" of malls would make it easier to implement policies and control rentals, it would undo a lot of the value-add that private players contribute to the retail landscape to enable it to maintain its competitiveness.

Besides, retail space in comparable neighbouring markets such as Hong Kong and Australia is practically entirely privately owned. The proportion owned by the government stands at 2 to 3 per cent. In Hong Kong, more than 97 per cent of the 123 million sq ft of floor area of retail space as at end-2018 is owned by the private sector, comprising developers and real estate investment trusts (Reits).

In Singapore, official statistics show about a quarter of the total 67 million sq ft of retail space is owned by the government.

The remaining 50 million sq ft is owned by private landlords - and of this portion, 85 per cent is owned en bloc (including shophouses); 15 per cent is strata-titled.

Public retail space in Singapore comes mostly in the form of leased HDB shops, shops in government buildings and hawker centres.

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The government has shown support for struggling commercial tenants affected by the Covid-10 pandemic by giving hawker and market stallholders three months of rental waivers, and other commercial tenants, two months of waivers.

In Parliament, legislation was passed to ensure that non-residential landlords pass on property tax rebates in full to all tenants. Property owners who fail to do so "without reasonable excuse" will be guilty of an offence.

This is already a better outcome than can be hoped for, compared to Hong Kong. Ethan Hsu, head of retail at Knight Frank Singapore, noted that the Hong Kong government has implemented relief measures for government-owned properties, but that this represents only a small percentage of total retail space.

"The Hong Kong Housing Authority has offered 50 per cent rent reduction for six months for its own retailers and waived the government rates for certain retail tenants. The government cannot force private parties to follow, but a few have voluntarily undertaken relief measures," he said.

He cited the example of Hong Kong's largest Reit, Link Reit, which has set up a fund of HK$80 million (S$14.6 million) to help small- and medium-sized retail tenants with rent relief and rent-free periods.

Tailor-made life lines

Some of the leading private landlords, including Sun Hung Kai Properties, Swire Group and Wharf Holdings, have offered tailor-made relief measures to some of their retail tenants, including rent-free periods, short-term rent reductions and postponements of rent payments.

Most consultants The Business Times spoke to do not think it is a good idea for the government to own the majority of the retail space here.

Tay Huey Ying, head of research and consultancy at JLL Singapore, cited the benefits of private provision of non-public goods, such as the fact that private companies' objective of profit maximisation will drive efficiency in allocation of scarce resources such manpower. The participation of many players will also drive competition and innovation and result in a vibrant marketplace and choices for consumers, she added.

"Nonetheless, it is recognised that one of the key disadvantages of private provision of goods is that its profit maximisation objective could result in the ignorance of external costs and benefits, such as social benefits, to the economy," she said.

In Singapore, Knight Frank's Mr Hsu observed that the profit-minded private sector often responds nimbly to market changes and provides retail experiences that are attuned to the changing trends, tastes and expectations of consumers.

"This constant evolution in the retail industry adjusts to the changing aspirational lifestyles of the populace.

"The government, on the other hand, has a social mandate to ensure that basic goods and services remain accessible to the general public.

"This strong partnership between government and industry develops the retail sector as a strategic economic pillar for the country. Therefore, market forces should be left to work out inherent opportunities and inefficiencies in the retail scene," he said.

The only exception comes at a time of extreme circumstances such as the Covid-19 crisis. He said that in this case, the government should take greater control through legislation and policy implementation to ensure that on-the-ground retailers receive the help they require.

Desmond Sim, CBRE's head of research for South-east Asia, is of the same mind. Putting retail space in government hands may hinder it from flourishing and impede incoming foreign investments, he said. What the government has done to enforce the passing-down of aid shows that when needed, the law can be used to apply pressure to meet desired outcomes.

In a crisis that hits both retailers and landlords equally, sympathies tend to lie with retailers. But rental issues are complex and are not merely the fault of the property owners. Putting malls in state hands just to consolidate control is thus an oversimplistic and impractical solution.

Above all, it will undo the very reason that such space was privatised to begin with.