The chief of Temasek Holdings, Ho Ching, has suggested that house investors “can’t really invest in other assets (like Reits) which are in some ways inflation-linked”. She said that it was the reason why Temasek worked hard to kick-start the real estate investment trust (Reits).
Describing investments as “chunky investments”, Ho Ching said that “the idea of of Reits is to democratise, unitise the possibility of investing in different kinds of assets in very small quantities, so the first Reit was to use shopping malls and convert them into Reits.”
“The reason why we did that was we said for the individual investors, the mom and pop investors and the young man or the old lady who wants to invests in the Reit of shopping malls… he or she can go to the shopping mall to see whether the shopping mall thrives, whether people are carrying shopping bags and so on.” – Ho Ching
Ho said that her sovereign wealth fund is now in the process of introducing a product which will allow retail investors to invest in private equity funds. She believes that by creating a product which is diversified (and therefore provides a better risk adjusted return for the individual), Temasek can bring a new category of product to the market for the retail investor.
The target group for the new product to be launched by Temasek could be the house investors. “As you know these funds are open and accessible to many of you but not necessarily to the broad masses,” she said.
“So quite apart from things like housing this is another way that we as an institution, …try to bring our skills and knowledge to create products in the future for those who want to invest for their retirement,” Ho added.
Ryan Ong, a prominent economic commentator suggests that REITS may be “killing” our businesses.
In writing for our publication, he said:
“REITS and high business cost are intricately linked, this is real. Just ask the many retail shop operators or food court stalls owners who suffer under one of the few major REITs operator, they will tell you. REITs are pushing the cost of shopper experience to the shop operators and mandating renovation to their specifications at the shop operator’s cost. REITs not only charge rentals, they also charge a percentage of sales on the revenue.
REITS leads to high cost of living, as your food court stalls are now charging $6, $8 and perhaps even $10 compared to $4, $5 and $6 in the past. They have no choice.
And we thought landlords bullying farmers were bad in the past, fast forward 2000 years, the same is still happening. Landlords bullying shop/stall operators.
It’s no secret that Singapore’s retail scene is dying, and that Orchard Road is showing symptoms of fatigue. Last year, Orchard Road malls saw record-high vacancy rates, at one point hitting 8.8 per cent. Amid all the hoo-ha about ecommerce and poor differentiation (because we all know there are so many ways to make shopping malls different), was a comment about Singapore REITs. While S-REITs have long been a favourite among investors, we may be closing an eye as to whether they’re hurting local businesses:”
Ecommerce is gradually murdering brick and mortar businesses, and in such a scenario, the question of “can rental rates continue being as high as REITs set them to be”, is valid.
“Think about that for a minute: a typical 500 square foot shop – something big enough to be a boutique or hair salon – could run up a price of $15,000 per month. Along with operating costs like staff, inventory, insurance, and others, this leaves most retail outlets struggling to break even. If you’re not convinced their struggling (despite some parts of Orchard looking like a ghost town), here’s a scary statistic for you: we had 8,680 retail closures last year, up from 4,557 in 2010. That’s a whopping 52.5 per cent increase.”
In 2014, the Workers Party raised the issue of REITs during a Parliamentary session. It was met with insistence that REITs are not responsible, on the basis that REITs only accounted for 20 per cent of our malls (at the time). The Ministry for Trade and Industry further said that it found little discrepancy in rental rates, between REIT owned malls and single owner malls.
Ong says that the Ministry’s reply still leaves a big question:Â “Even if the rental rates at single-owner malls are not too far off from REITs, why are rental rates so high in general?”
REITs may not own the majority of malls in Singapore, but they do own the major malls, which are the trend-setters when it comes to rental rates. And REITs have inclination to push for higher rentals all the time, as they have a bunch of shareholders to answer to. It’s entirely possible that single-owner malls follow in the wake, matching their rental rates to what the REIT owned malls set.
CapitaLand Mall Trust which owns shopping malls (and is 39.62 per cent owned by Temasek) was also the first Singapore Reit launched for retail investors. Ong thinks that CapitaLand understands that the retail and food & beverage sectors will sustain irreparable damage, which s why they are looking to manage SingPost’s first ecommerce mall, he said.
He added: “That could breathe a bit of life back into the retail scene…if rental rates don’t dissuade them from making the move. REITs seriously need to consider dropping those rental rates, and their shareholders should think hard about long term sustainability before complaining.”
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