The Housing Authority is exploring ways to ease the effect of rising interest rates on a relaunch of the Link Reit, including abandoning the real estate investment trust format. Officials said Link Management could not be listed in the first half of this year, and the chance of a listing before the end of the year was still unclear. 'In light of the rising interest rates, we have considered the possibility that a reit may not be the format' for the listing, said Lam Lit-kwan, the authority's assistant director of divestment. 'But for these kinds of property assets, a reit is most suitable.' The US has so far increased its interest rates to 2.75 per cent, with two rises of 25 basis points each within the past eight weeks. The consensus estimate among economists points to a year-endrate of 3.5 per cent. Banks in Hong Kong are free to determine their own interest rates, which remain below those in the US but are expected to continue rising. A reit is generally more attractive to investors in a low interest rate environment, because it offers both a higher yield and gains through capital appreciation. When interest rates rise, the yield becomes less of a selling point. 'The best time for listing the Link as a reit is past,' said Ronald Wan Ten-lap, SBI E2-Capital's executive director. 'The listing could still go ahead as a reit, but the yield now will be much less.' Mr Wan said there was not much room for the Link's yield to improve, as some 90 per cent of the revenue was already paid out as dividends, and rents charged on its property assets were capped. 'Giving the Link the right to increase rents is the only alternative, which is impossible right now,' Mr Wan said. He added that securitising the public housing assets as a bond was one alternative, but not a likely option. 'That's not a good idea. People in Hong Kong don't really like bonds, which don't trade and are quite illiquid. They prefer shares,' Mr Wan said. The increasingly less favourable investment climate for reits is proving to be a headache for the authority, which is also facing staff cuts and uncertainties over how to deal with new public housing estate properties in future. 'We haven't yet decided whether the commercial properties of new housing estates will be owned or managed by the Link,' said Kenneth Mak Ching-yu, the authority's deputy director of corporate services. Mr Mak said there was a right of first refusal clause in the authority's agreement with the Link, which required the authority to offer any public housing property for sale to the Link first. The right is valid for 10 years. Mr Mak said there are no plans to add any more properties to the Link until after a listing, as 'we don't want to change the composition of the Link yet'. Staff cuts, including retiring civil servants and the elimination of contract workers, have seen the authority's workforce shrink by 2,841 posts from October 1, 2002, to the end of this month. An additional 660 posts will go by March 2007, resulting in a roughly 30 per cent reduction in staff numbers from October 2002 to March 2007. Annual savings are estimated at $1.3 billion starting from 2007-2008.