A Private Member’s Bill to regulate commercial facilities in Public and Subsidized Housing Estates
2019 年 2 月 19 日
On 10 February, Federation and Trade Unions legislator Alice Mak and I jointly held a press conference to present a Private Member’s Bill - Regulation of Commercial Facilities in Public and Subsidized Housing (Legislative Provisions) Bill.
I write to inform you of the key objectives and provisions of the bill and why it is necessary to rein in the anti-competitive and exploitative practices of the Link REIT and the successor owners of the 180 commercial properties in public and subsidized housing. The Housing Authority (HA) sold them to the Link REIT in 2005.
Ever since the HA sold the commercial properties to the Link REIT, elected Members of District Councils and the Legislative Council have received repeated complaints about the hardship caused by the profit-maximization practices of the Link REIT - driving out wet markets, small neighborhood shops providing cheap goods and services to the local community, doctors and dentists, and hiking rentals to exorbitant levels after renovations.
The Link’s strategy paid off. From 2005-2017, rentals at Link public housing commercial properties rose 132% while those in private retail properties rose only 72.8. The Link REIT’s share price skyrocketed, rising from about $10 on its initial public offering to a recent high of $87, way above the performance of other REITs.
When the HA sold off the properties to the Link REIT, the original purpose was to improve estate management by introducing more efficient commercial practices, while allowing the new owner to earn higher return. In its naivete, neither the Government nor the HA expected that greed would drive the Link REIT to exploit its captive market to the full, in complete disregard of the needs of the low-income residents of the housing estates. The first Chairman Paul Cheng Ming Fun and first Chief Executive Officer Victor So Hing Wo were considered not sufficiently aggressive and had to bow out.
On two occasions, Paul Cheng expressed regret about the Link REIT’s business practices in media interviews -
“My resignation was the result of a clash between shareholders’ interests and social responsibility. TCI (The Children Investment Fund Management) wanted to raise rents substantially but I and the government wanted to raise them gradually.” (Rent-rise row forced Cheng to leave Link Reit, 2008, SCMP)
“When I was chairman, I tried to strike a balance at the beginning. But unfortunately, the Children’s Fund came in and started to dictate a very aggressive, profit-driven strategy which I did not really agree with. That’s why I resigned after two years. “ (Beware becoming a political football in Hong Kong, says former Link Reit head, 2016, SCMP)
There have been calls from many legislators to buy back the shares of the Link REIT. With a market capitalization of roughly HK$180 billion and breaking new highs, government buy-back could cost tens of billions of dollars and would only enrich unit holders, stockholders and top management of the Link REIT. Clearly this is no way to spend taxpayers’ hard-earned money.
I had raised my concerns with Mr. Ashley Alder, Executive Director of the Securities and Futures Commission. He indicated he understood the social concerns, but there is nothing he could do to remedy the situation under the REIT Code.
I also sought the advice of Sir C.K. Chow, former Chairman of the Stock Exchange of Hong Kong Limited, on whether the Stock Exchange could rein in the Link REIT’s profit-before-people strategies. Sir C.K. advised that the Stock Exchange has a reporting requirement on Environmental, Social and Governance issues, but cannot compel listed companies to adopt greater corporate social responsibility.
It is well known that under Mr. C.Y. Leung’s administration, senior officials had raised issues of corporate social responsibility with the Link REIT’s top management, but made no headway. Recognized as one of the “three mountains” oppressing the people’s livelihood, the Government has been powerless to cure the social ills caused by the Link REIT and successor owners.
One solution would be to build markets adjacent to the housing estates sold to the Link REIT and others, to provide more competition and consumer choices. However, it is well nigh impossible to find land adjacent to the affected housing estates.
Recently, after years of searching, the Government has identified sites in Tung Chung and Tin Shui Wai. But both sites are located at the town centre, and the plan to build multi-purpose building with some floors earmarked as markets provides scant relief for public housing residents. These facilities are no substitutes for the wet markets and other amenities previously located within public housing estates.
It is important to note that the bill does not interfere with the landlord’s right to set rentals according to market levels, depending on supply and demand. What it does is to control the rate of rental increase, in accordance with a reasonable formula taking into account of affordability, inflation and property values, to forestall excessive, some 40-60% rental increase on commercial facilities in public and subsidized housing estates.
The markets in the housing estates in question are not free markets. They are the captive market of the Link REIT and successors owners, which have dominant market power. The bill applies only to the commercial properties sold by the HA in 2005. They are an unprecedented and unique case, unlikely to be replicated in the future. The proposed regulation does not apply to the private markets.
I would like to close my longish newsletter by quoting from BlackRock CEO Larry Fink’s letter to CEOs 2018, entitled “Purpose & Profit”. Larry says,
“Purpose is not the sole pursuit of profits but the animating fore for achieving them. Profits are not in any way inconsistent with purpose - in fact, profits and purpose are inextricably linked.” Companies have a duty to serve stakeholders - employees, customers, and community - not just shareholders. “Companies that fulfill their purposes and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fall.”