Winners and losers from Link Reit’s 2005 takeover of Hong Kong estate malls
The real estate investment trust’s modernisation of malls, wet markets and shopping centres on public housing estates squeezed out some small businesses but created space for others, as well as big retail chains
To some in Hong Kong, The Link Reit is the devil incarnate. Hence the image of a demon’s claw reaching from the cover of a book written by its biggest critics examining changes in the decade since the government divested its ownership of shopping centres, wet markets and other facilities in public housing estates to the real estate investment trust.
The move brought HK$30 billion into the coffers of the Housing Authority. But when The Link launched in 2005, many feared that its focus on profits would drive up rents, force out small-business owners and, in turn, put a range of services out of reach of many low-income residents in the surrounding housing estates.
A number of those concerns have come to pass. Hap Wah, a popular food stall that has served residents of Fu Shin Estate in Tai Po for nearly 30 years, is among the latest casualties. The owners wound up their business last month because they could not afford the HK$3 million required to renovate the stall to meet criteria set by The Link for renewing their tenancy. About 20 people lost their jobs.
Over the years, The Link has steadily rolled out an “asset enhancement” programme, spending HK$4.5 billion to implement 41 upgrade projects. A HK$1.25 billion makeover of three flagship properties turned them into the gleaming malls of Lok Fu Plaza, Stanley Plaza and H.A.N.D.S in Tuen Mun. Jewellers, wine shops and department stores such as UNY have displaced the old clothes and stationery shops that once filled Lok Fu.
The Link has also overhauled 10 of the 85 wet markets under its management. In Siu Sai Wan, the market was relaunched with considerable fanfare in August following a HK$25 million transformation. Its floor laid with colourful tiles, the market is now a decidedly upscale operation with a technological edge. To serve customers working long or odd hours, a vending machine called i-Fruit ensures 24-hour access to fresh apples, oranges and the like.
Then there is i-Chicken, a stall that aims to deliver the fresh poultry that Hongkongers favour without the mess that goes with slaughtering live birds. It is fitted with a television monitor linked to a live- chicken stall at nearby Chai Wan market, and customers in Siu Sai Wan can select their chickens remotely as workers at the other end hold up live birds to a camera for their inspection. The dressed birds are then delivered to the i-Chicken counter for pick-up.
As snazzy as the new operations in Siu Sai Wan are, the makeover comes at a price. Of the 50 stalls operated in the old market, just five remain. The survivors must cope with rent increases of between 30 per cent and 100 per cent: a 200 sq ft stall now costs HK$35,000 a month and a 400 sq ft site about HK$80,000.
Watch: Goodbye Hong Kong wet markets, hello i-Chicken?
Such rental pressures have decimated the number of small businesses operating in the city’s 33 public housing developments. According to Chan Wing-shing, president of the Hong Kong Public Housing Estate Shop Operators Union, its ranks have plummeted from 7,000 members to 2,000 over the past decade.
What’s more, he adds, retailers in far-flung districts may find their premises under new ownership as The Link concentrates its energies on more centrally located malls. In 2014, it sold nine properties, including Tin Ping Shopping Centre in Sheung Shui and Siu Lun Mall in Tuen Mun, to other companies.
Chan, who has run his electrical appliance shop in the Shek Wai Kok Shopping Centre in Tsuen Wan for two decades, fears the property may be up for sale next. “Our mall is always quiet, with more than 70 per cent of shops vacant.”
Under the Housing Authority, Chan says, officials would always discuss rent rises with tenants, usually setting for a smaller increase for older estates.
“Last year, my rent rose 40 per cent from HK$7,000 to more than HK$9,000 [per month]. This is on top of increases in management and air conditioning fees. Vacancies are now close to 80 per cent. I will retire next year as the outlook is too grim,” he says.
The chairwoman of watchdog group Link Watch, Sophia So Lok-yee, says although the government pledged that appropriate mechanisms would be in place to prevent The Link from selling properties at will, the relevant clauses were never written into in the land leases. That meant The Link was able to offload less desirable assets to buyers who eventually broke them up to sell for greater profits.
Because of this, she said, “a space in the car park of Tung Hei Court in Shau Kei Wan sold for more than HK$1 million. This is outright speculation,” So says. “Fragmented ownership will create management problems for future maintenance projects. And if the owners of parking spaces introduce steep rent increases, car owners can only endure the hike.”
Confounding critics, The Link reached its 10th year with its share price having quadrupled from about HK$10 to more than HK$40. Its malls, which account for about 20 per cent of retail space in Hong Kong, now command average rents of HK$45 per square foot per month, up from an initial HK$23.
However, The Link Management has steered clear of big anniversary celebrations. The low profile is understandable – past promotional campaigns have tended to be public relations disasters. In 2012, a nostalgic campaign highlighting traditional businesses in its malls had to be suspended following a widespread outcry over its role in the demise of many shops.
To further diversify its investments, The Link expanded its property portfolio this year: it not only acquired a large commercial site in Kwun Tong in a joint venture with Nan Fung Development, but also bought a Beijing shopping centre for 2.5 billion yuan (HK$2.9 billion) and two Shanghai commercial towers for 6.6 billion yuan.
Link Watch has used the anniversary to publish a book examining the changes that The Link Reit privatisation has wrought in the past decade. In 2007, then Link chairman Paul Cheng Ming-fun stepped down before completing his term, citing concern over the impact of aggressive rent rises on small retailers. Many people continue to blame the management for forcing small businesses from its malls, So says.
Big chains now account for 76 per cent of retail space in the 22 malls that The Link runs, with a high of 96 per cent at the Chung On Shopping Centre in Ma On Shan, she adds. The Link executives, however, have disputed her figures.
In building a brand identity for its malls, The Link Management has brought in a variety of shops and restaurants as tenants. Café 1950, run by restaurateur Ip Kalan in H.A.N.D.S in Tuen Mun, is among them. While some view The Link as a destroyer of small businesses in public housing estates, Ip says it has given him the chance to flex his entrepreneurial muscles.
He started the cafe two years ago and has since expanded to five outlets, all in Link malls.
“I had five restaurants in urban centres previously but closed the last one in Tsim Sha Tsui last year. I was driven out by the crazy rent rises, which can be as high as 300 per cent.”
Although he won’t reveal the rent he pays at The Link premises, Ip says it is reasonable and he still makes a decent profit.
“Our dishes are not expensive. The most expensive set meal of pig’s trotters costs only HK$138, and a tea set is just HK$19. Residents can enjoy cheap Western cuisine here.
“Before the mall renovation, there was a lack of dining choices, with only congee and noodle places and cha chaan teng.”
Public housing residents sometimes have more disposable income than the middle class, as they pay just over HK$1,000 in monthly rent and their children receive free education.”
Moreover, Ip adds, hygiene conditions are much better after the renovation.
“When I first came to check out the site [in Tuen Mun], there were rats and cockroaches everywhere. Now the toilets are clean. The Link Reit also requires us to have a spacious layout so that disabled diners can have easier access.
“We also help boost employment in the area.Our waitresses are mostly housewives from nearby estates who work four-hour shifts. Times have changed. If a shoe vendor does business in exactly the same way as he did three decades ago, he will face the danger of being phased out. Even I have to change my menu constantly to take into account diners’ changing tastes.”
A Link spokesman said maintaining a well-balanced and attractive tenant mix was important to the success of a shopping centre.
“Chain stores were in existence long before our launch. About 60 per cent of our tenants are small retailers, non-chain stores with spaces under 1,000 sq ft,” he says.
“Shoppers come to a mall only when it provides the choices they need or an experience they enjoy. Some shops cannot survive because people do not support them and do not give them enough business. This is the result of market forces working to direct resources to services that best meet people’s needs. The free-market principle… is at work in many sectors of our economy,” he said.
Referring to the disposal of some properties in the Link portfolio, the spokesman said: “It is part of our strategy to create value for unit holders. As a responsible manager, we will continue to review the portfolio for opportunities to streamline and improve operating efficiency.”
While some mourn the loss of long-time neighbourhood businesses in the refurbished shopping centres, a group of small investors celebrate the Link’s overhaul of the properties.
Dubbing themselves 823 fans after the stock number of The Link Reit, the group takes pride in the appreciating value of their investment in the company.
Members even take turns to visit the 146 facilities now under Link management, and post photos of the properties and information such as rental and annual profit on their blog called Grassroots O2.
Describing public criticism of the company as unfair, the blog host says: “The Link Reit has improved the business environment for shopping centres in public housing estates. Under the Housing Authority, management was poor, the malls were run down and stayed vacant for a long time.”