Wednesday, October 04, 2006
[RealEdge] BT : Fears over govt property Reits unfounded
| Published October 4, 2006  | ||||||||
| COMMENTARY | ||||||||
| Fears over govt property Reits unfounded A thriving Reit market benefits the financial sector, the economy at large and an ageing population
By LESLIE YEE
A 67-YEAR-OLD lady delayed the $4 billion initial public offering of The Link Real Estate Investment Trust (Reit) in Hong Kong by almost a year. Her grievance was that the sale by the Hong Kong Housing Authority of retail and car park properties to Link Reit could lead to dearer fish and vegetables at a market owned by the authority.
There is no time-frame yet, but the possibility of Singapore's statutory boards JTC Corporation and HDB divesting large chunks of their property portfolios into Reits exists. Such moves could in turn pave the way for further property divestments by other parts of the government. Should all this come to pass, investment bankers and the Singapore Exchange, among others, will have much cause to celebrate. However, given that a Reit manager will try to get maximum rental, as this is the manager's duty to unit holders, could there be major adverse social implications should HDB's retail outlets and car parks end up in a Reit? Will heartlanders have to pay more for their necessities? Will it become even harder for small shopkeepers to make a living? Will HDB home-owners be faced with higher carpark charges? Sticking with the status quo especially when it is not seen to be hurting the average Joe appears the easy way out. After all, why cause more potential turmoil in the lives of people who already have to cope with economic restructuring, globalisation, and the influx of foreign talent? But the world does not stand still and there are powerful arguments for putting significant amounts of government property into Reits that go beyond benefiting certain commercial entities. These arguments include adding breadth and depth to Singapore's capital markets, improving the management of the assets in question, and recycling capital for more productive uses. Most compellingly, having some of the average Joe's retirement money invested in Reits, especially those backed by high quality leases, is a major positive. With our ageing population, there is an urgent need to ensure people save enough for retirement. Having CPF monies earn 2.5 per cent interest per annum may prove insufficient, but putting money into equity unit trusts could entail somewhat more risk than is desirable. Clearly, defensive yield plays like Reits have a major role to play in any retirement savings portfolio. As such, the government will do well to ensure that there are a large number of good-quality Reits in Singapore for the average Joe to put his money in and earn a tax free yield of say 5 per cent or more per annum, with the hoped-for possibility of growth over time. Should ownership of industrial facilities transfer from JTC to a Reit, the days of JTC having the flexibility to reduce rents to help small and medium enterprises (SMEs) through difficult times may become a thing of the past. But whether it be for small businesses or average Joes, Reits should not be perceived as some fearsome creature. Sure, retail tenants in malls owned by Reits face pressure to perform as the Reit manager introduces new retail concepts and attempts to capture as much rent as possible. Do not forget though that the Reit manager needs to attract more traffic and more good quality traffic for the mall in question, so that rental rates rise in line with an increasing value proposition. The invisible hand of the free market can at times fail and government intervention may therefore be necessary. But having the government own assets so that it can have the flexibility to reduce rents to help SMEs and average Joes is not necessary and perhaps not a very effective option. Other tools are available to help, such as providing grants and giving rebates on taxes and utilities. Trust Singapore's smart civil servants and statutory board officials to come up with creative yet effective solutions. The implementation of good policies requires winning hearts and minds. Parties affected by government properties ending up in Reits need to be won over. Bankers, professionals and officials should spend time diligently winning over hearts and minds. However, do not let misplaced fears or addressable concerns stand in the way of the Singapore government divesting assets into Reits. Indeed, should we be able to put a military base into a Reit without compromising national security, let us do so. A thriving Reit market is good for the financial sector, the economy at large and an ageing population. | ||||||||
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