No role for government in running shops

PUBLISHED : Thursday, 18 December, 2008, 12:00am
UPDATED : Thursday, 18 December, 2008, 12:00am

Legislators debated yesterday whether the government should buy back shares from The Link Reit, the trust set up three years ago to manage public housing estate shopping centres. The discussion is grounded in concerns about the raising of rents for tenants at small shops. Lawmakers' hearts are in the right place, but critics are wrong to think that the administration should resume holding a part or whole stake in the malls. History has taught us that government and public agencies are not suited to running such commercial operations.

The government had good reason to end the Housing Authority's job of managing these shopping centres. It was, after all, a body set up to provide inexpensive accommodation for the poor and had no expertise running wet markets and shops beneath and around housing estates. The businesses were, as a result, poorly managed. Privatising the shops was the best decision.

There is no doubt that The Link Reit has a difficult job. It is running commercial premises located in public housing estates that used to receive hidden subsidies from the government. Market forces have to take sway, which means balancing demand, ensuring value for money and still turning a profit. There has to be some sensitivity towards stakeholders.

Recent shop rent increases have been questioned. Why, for example, are shop rents in some public housing estates higher than those in nearby private ones? The answer lies in market forces. Link Reit has shareholders who demand a return; it is a commercial enterprise with managers who are only too aware of expectations.

This was not the case when the Housing Authority was in charge. Properties were sub-contracted to a wide array of managers, making for complex accounting. The authority, the ultimate owner but not a profit-making body, had little concern about the efficiency or cost-effectiveness of its shops. A chaotic situation ensued that benefited neither everyday users nor taxpayers. Nothing is to be gained by returning to those days. A partial buy-back of shares by the government serves no purpose. A majority stake also has no benefit. A full buy-back would mean putting public servants back in charge. Any of these situations would be wrong in a city whose success lies in free markets.

There were fears when The Link Reit was set up that shop rents would increase - those concerns have been realised. The Link Reit should exercise sensitivity towards tenants, but change is to be expected when a subsidised government system is replaced by a free-market one. Although this has in some instances led to higher prices and changed the character of shopping centres in public housing estates, it is a natural consequence. The government should not be in the business of running commercial enterprises.