Are High Rents Stifling Businesses In Singapore?

Businesses Highlight Rents As Key Concern

Earlier this year, before Budget 2013 was announced, businesses had announced their own proposals for what they had hoped Budget 2013 would provide.

Many of these businesses highlighted rising rents as a concern.

In the Singapore Business Federation National Business Survey 2012/2013, “72% of (businesses) indicated reducing business costs as their top concern” (Chart 1).

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Chart 1: Singapore Business Federation National Business Survey 2012/2013

Of the costs that are most concerning to them, rental costs came out top (Chart 2).

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Chart 2: Singapore Business Federation National Business Survey 2012/2013

The Institute of Certified Public Accountants of Singapore had also conducted a Pre-Budget Roundtable 2013, and they had said that, 60% of businesses “are increasingly concerned about rising business costs, especially rental costs” (Chart 3).

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Chart 3: Institute of Certified Public Accountants of Singapore Pre-Budget Roundtable 2013

Once again, they highlighted rents as a major concern – “81% of the respondents want measures to reduce or offset rental cost”. Very clearly, the high rents also prevent businesses from being able to do more for employees, as “many respondents indicated that the high rental costs affect their financial ability to invest in automation and staff training to enhance productivity.” They had also, “suggested that the government consider a one-off relief or grant to help the SMEs better cope with rising business costs, particularly rental costs, and other measures to provide more industrial land and office areas at affordable rates”.

Given that rising rents are a major concern and prevent businesses from passing on any savings to the workers, if you are the government, what would you do? Would you reduce rents?

I don’t have further access to information on the trend of the rising rents, so I am not able to make a further comparison here. Otherwise, we could also look at how fast rents are rising, and decide on how fast we think they should run.

The Government Controls The Rents

But your next question might be – but why would the government be able to control the rents? Well, because it does.

You see, the PAP government has its hands in all aspects of rent.

First, government agencies such as the Housing Development Board and the National Environmental Agency lease out spaces.

Second, the government runs two investment companies – Temasek Holdings and GIC and they have majority shares in private companies. Of the major real estate companies in Singapore – CapitaLand, Mapletree and Surbana, the Temasek Holdings has majority shares in them (Chart 4). Other real estate companies also has indirect investments from Temasek. For example, Fraser and Neave has in them shareholders such as DBS, which Temasek has majority shares in.

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Chart 4: Temasek Major Investments Portfolio

Finally, non-real estate companies like the SMRT, which also lease out commercial units for rent, also have majority investments from Temasek.


So, you see, the government is a major player, if not the main player of the business of collecting rents in Singapore.

What Dr Aline Wong, Academic Adviser for SIM University, and who once helmed the Housing and Development Board and was Senior Minister of State (Health and Education) from 1995 to 2001, had said, would be more insightful. She had said that, “At a local level, there is tremendous competition for space. And the allocation system, if it depends on the market, may not be the most efficient, as it’s not where the local needs are.

Given this scenario, do you think it is healthy that the government is a major rent-collector in Singapore? How does their involvement in almost all sectors of the property market allow them to control land, and housing prices and allow them to jack up prices beyond the affordability of Singaporeans? Also, how much rent is the government collecting exactly and how is it coming back to Singaporeans, or not?


    • Namco

      Did you miss it? A government shouldn’t be run like a business. There is a need for a mindset change at the top of the echelon. First thing you have to ask yourself is what is the function of a government? Is it just to collect revenue and maximise profit, minimise losses? Or is there more to it? Why would the people need or vote for a government? You need to ask yourself very fundamental questions and do some soul searching, then you will slowly understand what fuels people like Roy to write such an article.

      Having said that, rent must rise over time, but it must be at a pace that is sustainable, not like what is happening now. Ask Roy to show you some charts if you still can’t understand what he is getting at.

  1. firez

    We all know that.. how is that bad? I believe lip hong is asking you if there’s a better solution to our land scarce country. The hard truth is probably more than just facts but opinion…. poor

  2. Ng Lip Hong

    the problem is every where! look at who is replacing the mighty mcdonalds who couldn’t afford it. a local startup call sa sa!

    The Big Mac has been priced out of Hong Kong’s most exclusive shopping strip to make way for yet another retailer eyeing the wallets of cashed-up mainlanders.

    Despite McDonald’s being the world’s largest chain of hamburger restaurants, it still could not afford the rents in Causeway Bay’s Russell Street, and has been forced to move out.

    Operated by McDonald’s Corp, the restaurant opened on the first floor of 8 Russell Street in 2006.

    Donald Cheung Ping-keung, executive director of the landlord, Emperor International, said the 6,000 square feet shop had been leased to Sa Sa International Holdings for HK$1.58 million a month. Sa Sa will move in in October.

    The rent is more than three times higher than the existing monthly rent of HK$500,000 paid by McDonald’s, which signed a lease two years ago.

    Joe Lin, senior director of retail services at CBRE, said: “Retailers such as luxury watch and jewellery stores who are targeting mainland shoppers are eager to move into the street, as it has become the most famous shopping street to mainland tourists. [Luxury retailers] are willing and able to pay rent of HK$1.6 million for a shop in the street. Other retailers are able to afford a monthly rent of only up to HK$900,000, so it is inevitable that other non-luxury goods tenants have to move out.”

    Lin said retail rents in Russell Street have jumped sevenfold since the Individual Visit Scheme, allowing mainlanders to visit the city, was launched in 2003. By last year, the average rent of street-level shops on the street surpassed Fifth Avenue in New York, making it the most expensive shopping street in the world, according to Cushman & Wakefield.

    Fifteen of the 28 stores on the street are sellers of luxury watches and jewellery. Including retailers of cosmetics, a money exchange, high-end fashion and luxury accessories, there are 24 stores targeting mainland shoppers. Only four shops do not rely on mainland tourists.

    Lai Wing-to, a veteran property investor who owned a shop in Russell Street, said: “The retailers open these shops as a way of advertising their brands, and they are also able to generate profit. In the last few years, it has been common to see mainlanders buying dozens of watches.”

    Lin said the non-luxury retailers who are not reliant on mainlanders may generate only moderate profit and may have difficulty affording expensive rents.

    McDonald’s is an example. A Big Mac meal cost HK$21. Even if McDonald’s paid no other operating expenses, it would have to sell one Big Mac meal every 35 seconds every 24 hours to pay a monthly rent of HK$1.58 million.

    Beijing’s anti-corruption campaign and the economic slowdown on the mainland have meant that local sales of luxury goods have decreased significantly since early this year. But retail rents are expected to stay firm in the short term.

    Cheung said there were hundred of international brands in the world and many of them were interested in expanding in Hong Kong. “But the growth in the rent will slow,” he said. “We won’t see a 20 per cent growth a year as we saw over the last few years. It will be flat, as rents have increased a lot over the last four years.”

    Lin said: “Even if the overall retail rents turn flat or fall, the rents in Russell Street would be the last to suffer.”

    • mandy

      Ng Lip Hong,
      So what is your point ? If you want to convince us it is everywhere speaking like PAP , may I suggest you stop responding to this site least it makes a fool of yourself and insulting the intelligence of the readers here. I’m sure if you post in STForum, you might gain more respect among the daft. It is like saying GST is everywhere when there is no GST for Hong kong, in the same way something the PAP will quickly point out using mediacorpse through some selective public to tell us that a toilet in Hong kong can buy you a flat in Singapore, while at the same time, conveniently compare to GST rate to some countries with higher GST but not to hong kong with no GST .

      I don’t know what is your intention but at least stop insulting our intelligence.

    • komatineni

      honestly and pragmatically, this is how a nation should be run. If it’s not we can see examples throughout the world. Whether it’s developed or developing, there are limitless examples.

  3. firez

    Lol. You obviously don’t understand what the singapore government is doing. There’s a reason why majority of these companies are government linked because we never want our lands to fall to private entities and have no control. Running like a business? I agree but if they are not doing a good job, the business won’t be so prosperous. Furthermore, if you mention about social issues, take a look at hong Kong. Is that really what we want? I may not think that this is the best system but it’s the best at the moment. Lastly, please be rreminded that our land is scarce, it’s natural for land to get mmore expensive. It’s a supply and demand issue.

    • Sgcynic

      Our lands must never fall to private entities! But no problem with power generation plants, GLCs and other strategic assets! Uniquely Singapore. What irony!

    • Roy Ngerng

      Businesses are prosperous? Tell that to the people who have seen their wages remained stagnant while prices increase and to the very poor where their real wages have dropped.

  4. Anon

    Very soon the serfs here will have to work 16 hours to afford a bedspace for 8 hours.

    This can happen with a PM who is a mathematician only able to work with numbers and cannot quantify citizens’ happiness and well-being.

      • sally

        Its better to work for high pay than low pay. Its also better to wait for better pay than to work for pittance.

      • Anon

        So it’s better to be a citizen only in name when in actuality one is a subject – a subject of the Kingdom of Lanfang?

        Are you an eunuch in the service of the King of Lanfang?

  5. Ong

    This is pure economics.. supply and demand. In many of the comments/articles, it talks about raising minimum wage, why is housing expensive? why is medical expensive? why is retail rents going higher? If you want to raise salaries, someone has to pay for it…. if it goes too high, business becomes unsustainable and companies will leave Singapore and then we will lose jobs. This is not that I want for myself and my next generation. Can we always subsidize? Look at Thailand now, the government is allocating so much money to buy rice/rubber from their farmers at way above international prices causing a huge deficit (of course there are other reasons contributing to the deficit). Eventually, it all boils down to a free economy and slight government intervention will be able to help those who are a disadvantaged. I Strongly agree with some comments in this blog that this is perhaps the best system at the moment.

    • mandy

      ” Can we always subsidize? ”
      Of course not, but the government here will love to subsidize you here as they can raise the price way above the subsidy and then return a fraction of the excess profit as subsidy to make you feel happy and feel good. If you really observe, it always the same pattern, when the govt want to hike (property tax, gst), they will wayang the parliament debate and give you one-time rebate, but then you endup paying more after the rebate are used up.

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  9. Vote against PAP in 2016!

    Remember rents is so high because of supply and demand situation. With the open door policy of foreigners including foreign companies especially those from India and China, there are many small setup shops especially those in IT, setting up small offices and cause a huge demand in renting offices.

    And not only commercial rentals, but also residential rentals like HDB etc. Many Singaporeans took the opportunity to buy a second house and rent out their HDB, hence you can see many HDBs now more than 30% of them are foreigners renting it.

    But sad to say, when PAP starts to clamp down on open door policy on foreigners, these artificial short term demands will dwindle over time. You will see many foreigners out of job and going back home, and less foreigners renting out on HDB, and those foreign SMBs companies who is unable to hire their own kind, forced to close shop, hence this will also diminish the demand for commercial office rentals.

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