14 February 2014
SMEs start to push back at rising rents
Teh Shi Ning

ASME head bemoans 'cartel' of institutional landlords using 'draconian measures'

[SINGAPORE] Singapore's small and medium-sized enterprises (SMEs) are getting proactive about the mounting rent pressures they face.

The Association of Small and Medium Enterprises (ASME) is studying the feasibility of a database to track industrial and retail rents. This would record effective rents rather than contractual ones, providing greater transparency for SMEs and their landlords, ASME president Kurt Wee said at BT's Budget Roundtable.

"There is a need for better transparency . . . We think that in the institutional landlord space, we are seeing signs of a bit of a cartel in operation. Because we do have limited real estate space in Singapore and, very often, we're hearing anecdotes of very draconian measures on individual tenants by institutional landlords," he said.

The report that ASME is working on could then form the basis of recommendations for a code of best practices for industrial and commercial landlords.

"You know, we've imposed the lemon law on business, we imposed the Do-Not-Call registry on business. We wonder if we should impose some better practice in this space. How is a business supposed to react when they want to renew their lease and are told they are going to face a 300-400 per cent increase in rent?" he said.

This is especially so given the current cost climate. Wage bills have swelled due to higher foreign worker levies and stricter quotas, while global commodity costs have been on the rise and minor compliance costs are adding up, Mr Wee added.

So it is local SMEs which are feeling the heat the most - calls for help with the affordability of business space have grown louder both in and outside Parliament in recent months.

Real estate investment trusts (Reits) - some of which were formed after JTC and HDB divested space to private owners - have been blamed for shorter lease renewals and sharper spikes in rentals. "That is not to say that Reits are bad. I think Reits are good because Reits have also redistributed wealth in various and positive ways as well. But we think that there are certain practices that need to be improved, so that there is a better balance between business and landlords," said Mr Wee.

For instance, ASME intends to question the practice of retail landlords collecting a percentage of turnover rung up at the tills as rent, on top of base rents. "Although it is globally practised, we probably are going to question this issue of linking point-of-sales systems to landlords," he said.

These concerns over business space rents are not new - they were raised in Parliament last October. But they remain, even as several rounds of administrative measures to cool the property market - along with rising supply and the total debt servicing ratio (TDSR) framework - seem to have had some impact on official rental and price indices.

This has led to suggestions from property players that it may be time to tweak the property cooling measures. Century21 CEO Ku Swee Yong said at the roundtable that he does not expect major changes.

"If every quarter, property valuations drop islandwide by 2 per cent, such that over the course of the year we have a 8-10 per cent decline, I think that sort of gradual decrease doesn't hurt the banks' balance sheets, doesn't really hurt families' balance sheets - because over the course of the year, they are also paying down their loans. That sort of a stalemate, sideways situation, the government is probably very comfortable with."

 

It is the potential hike in interest rates as the US Federal Reserve rolls back its quantitative easing (QE) programme that the government will be watching, he said. When that happens, and Singapore's interest rates rise in tandem with rates in the US, the authorities may then remove a portion of the curbs put in place so far.

CR: The Business Times