Are landlords the cause of our downfall?

SINGAPORE: On the popular Singaporean subreddit r/asksingapore, a user recently posed a question with deep undercurrents: “Are landlords the cause of our downfall?”

The rationale

The user reported passing by a coffee shop where five stalls were permanently closed, including a zi char stall – a sight the user had never witnessed before. When asked, the aunties at the drinks stall explained the stalls were closed because of prohibitive rental prices. This prompted the user to pose a tough but necessary question: “Isn’t rental prices determined by landlords? Can’t they make it affordable so tenants can continue selling?” This question gained further weight given the multiple other shops that remained vacant.

One user commented, “Landlords will only reduce the rental when they feel the pain of not being able to rent the place out; otherwise, they will just keep squeezing, simple economics.”

The rent crisis

Commercial rental costs in Singapore have been rising, with some even spiralling out of control. According to Terence Yow, managing director of Enviably Me Group of Companies, a healthy rent-to-sales ratio is around 15% – but in recent times, this has surged to an “unhealthy” 50%.

What does he propose instead? On a CNA podcast, Yow suggested that landlords get their “skin in the game,” pegging the rental as a ratio of total sales/profit instead of charging a fixed amount. He reasoned that such an agreement would create a greater incentive for the landlord to develop and attract customers to the business, ensuring its potential success. This approach would make the landlord a stakeholder while also enabling them to earn greater yields from their rent if the business grows.

This phenomenon is called turnover rent. It essentially shares risk and reward more evenly between landlord and tenant: when the tenant produces higher turnover, the landlord receives a higher rent; in leaner times, such as during a period of low economic activity, the tenant is required to pay less as they earn less.

What about implementation?

Critics of the agreement, however, argue that turnover rent adds further complexity to the lease and requires more negotiation and drafting than a standard fixed rental lease. There’s also the potential for losses, especially if the landlord is not able to make mortgage payments from the rent obtained. Furthermore, the formalities required to keep a check on business turnover necessitate more administrative effort, with audits sometimes proving quite costly.

All in all, as young Singaporeans enter a rental market that favours those with capital instead of ingenuity, many may be turned away from taking the leap of faith and realising their entrepreneurial dreams.