Jake's View
PUBLISHED : Sunday, 26 January, 2014, 5:00am
UPDATED : Sunday, 26 January, 2014, 5:00am

Housing Authority has no business in being a shopping mall landlord

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

"Let me repeat: the [housing] authority will continue to manage these commercial facilities and has no plans for further divestment."

Duncan Pescod, Director of Housing
Letters to the Editor, January 23

Note the tone of authority in this statement - "Let me repeat." It is rare these days to find a public official prepared to be quite so firm about a policy measure.

Unless, of course, he knows that his bosses are so firmly on his side that they would never rein him in. It reminds me of the old cartoon of the politician ringed by armed policemen as he says, "And I can tell you without fear of contradiction ...".

I'm sure it is true that commentator Albert Cheng King-hon had things twisted the wrong way round when claiming he had evidence that the Housing Authority will again sell off its shops as it did in the flotation of The Link Reit nine years ago.

Albert had a rumour, not evidence, and, amongst public housing boosters, rumours about the dastardly plots of The Link Reit rise to the surface faster and in greater number than fizz bubbles in a soft drink.

But, more than this, Mr Pescod knows that the bureaucracy is universally of the opinion that the privatisation of The Link Reit was a mistake and should never be repeated.

This is unfortunate. The Link Reit was not a mistake. The privatisation was exactly the right thing to do. The mistake was in how the shops were run in the years before they were privatised and there is evidence that the Housing Authority is still making this mistake.

The background is simple. With property prices tumbling at the beginning of the last decade the government decided it would no longer need to build housing for public sale. This hit the Housing Authority's finances hard. It funded construction of public rental housing from its sales programme.

As the government's overall fiscal position was also tight at the time, the authority decided to make up the shortfall by bundling the commercial areas of public housing estates into a separate real estate investment trust and floating this on the stock market. It was the authority's belief that the new investors would be passive and leave it to run the shops as before.

This proved a vain hope. The shops paid below-market rents and the opportunity was soon spotted by institutional investors. They bought up enough shares to take control of The Link Reit and then began a programme of spiffing up the shops and hiking the rents.

Let's put this into its proper perspective. In Housing Authority parlance a shopping mall is not a shopping mall. It is an ancillary services facilities block and the reality was frequently as bad as this Soviet-esque description.

The tenants of these glum, grey estate shops, handpicked by the authority, mostly sold plastic kitsch of the sort that people put on the bookshelf above the television set.

Neither the Housing Authority nor tenants had any incentive to respond to real market demand and, aside from the wet market areas, shoppers mostly abandoned the gloomy, dusty halls for high street malls.

The Link Reit changed this. It brought in new tenants, new ideas, and made shops again of what were meant to be shops, along the way raising the rents to market levels, rewarding investors who foresaw how things could be improved.

Unfair, say public housing lobbyists. The shops now sell things that people don't want at prices they cannot afford.

There is an obvious counter-argument to this. The proof of the pudding is in the eating.

If people really do not want variety and clean, bright shops, then they won't come and the shops will not be able to meet the higher rent demands.

But the opposite has proved true. The Link Reit is a proven success. People like the changes and are happy to pay the prices. The failure lies rather in the authority's remaining ancillary services facilities blocks, tarted up here and there because of The Link Reit's example but otherwise as dismal as ever.

So here is a piece of advice for you, Mr Pescod. Stop repeating and start divesting. The Housing Authority is not a competent commercial landlord.

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