Link Reit buy-back idea offers public a new lease on loss

Do you agree the government should buy back shares in The Link Reit to lower the rents of local businesses?

Here is an idea that would do nothing to lower the rents of local businesses but a great deal to sting the public purse for another big loss. Let's start by setting the history of The Link Reit in perspective.

About 10 years ago the government decided to close its subsidised sale housing programme, the Home Ownership Scheme (HOS), as home prices had fallen so much over the previous five years that buyer subsidies were no longer considered necessary.

This raised a difficulty for the Housing Authority, which relied on income from HOS sales to build its public rental housing. Its solution: bundle up the housing estate shopping malls and car parks as a separate company and sell shares in it on the stock market. That would cover the costs of public housing construction for years to come.

Privatisation was still in the air back then and the fashion in privatisations was the real estate investment trust (reit), an American tax dodge whereby almost all the profits of the security are paid out as dividends. Reits had little real application here but fashion is fashion and The Link was made a reit when floated in 2005.

But the authority made one fundamental miscalculation. It thought it could sell all the units in the reit to the public and still retain control. A British fund manager, Chris Hohn, knew otherwise. He saw opportunity and, primarily through his Children's Investment Fund, bought an effective controlling interest and put in his own management. What Mr Hohn saw was that the authority had woefully undervalued its shopping malls. It treated them as a form of social welfare and had kept the rents much too low, which gave it scope to choose its preferred tenants.

It chose badly. Aside from the obvious provisions outlets and eateries, most of the shops in these malls sold low-margin plastic knick-knacks and were under-patronised. The malls were also not kept up to modern standards and looked tacky even when reasonably maintained.