LettersShopping at Hong Kong wet markets: the Link Reit effect

Critics say the Link should not be raising rents at markets, but would tenants pass savings from lower rents on to their customers?

Clever remodelling has reduced the retail space and thus the competition, allowing tenants to increase prices and share the higher income with the Reit

2-MIN READ2-MIN

A market in Lok Fu, Kowloon, managed by the Link Reit. Photo: Sam Tsang

Published: 7:00am, 5 Apr 2019Updated: 7:00am, 5 Apr 2019

The Link Reit has been criticised for raising rents at its wet markets by many commentators, including senior politicians such as Regina Ip (“Free market no excuse for Link Reit to rip off low-income residents”, March 28).

Such critics make the erroneous assumption that if the Link were to lower rents, the kindhearted tenants would pass the money saved on to customers instead of pocketing it themselves.

Elementary economic theory tells us that the Link and its tenants enter into a profit-sharing arrangement. The Link’s share is called “the rent”. The maximum net income available for sharing does not depend on the rent charged, but only on demand and supply, which is supply and competition in the case of the Link.

What I think the Link has cleverly done is to remodel its markets into ones with much more generous aisle space, allowing customers in wheelchairs and those with baby pushers to move around much more freely and conveniently than was previously possible.

This remodelling has reduced the retail space and thus the competition. After remodelling, the Link’s Tung Chung market now has fewer stalls selling fish, and one hardware shop instead of the previous two.

Competition has also been reduced by increasing the variety of the products sold. This reduction in competition in the name of convenience and variety has allowed the tenants to increase prices and thus generate more net income that can be shared with the Link.