26 April 2019
Criticism of Link REIT’s lust for high returns at the expense of the public's interest has gotten worse since George Hongchoy (right) became its CEO. Photo: HKEJ
Criticism of Link REIT’s lust for high returns at the expense of the public's interest has gotten worse since George Hongchoy (right) became its CEO. Photo: HKEJ

Link REIT: a financial monster bred by the govt

Ever since Link REIT (00823.HK) went public in 2005, it has remained at the centre of controversy over its aggressively profit-driven approach to running its shopping malls, car parks and public wet markets.

The lust of the real estate investment trust for high returns at the expense of the public’s interest has grown even stronger after George Kwok-lung Hongchoy became its chief executive in 2010.

Back in 2004, I publicly pointed out that the Housing Authority’s decision to privatize its 151 shopping malls and 178 parking lots in its public housing estates for just HK$22.2 billion (US$2.86 billion) was a perfect recipe for disaster and was bound to have far-reaching and negative implications for society in future.

Most people were skeptical about my prediction at that time, and the fact that I fought a rearguard action against the privatization by filing a judicial review was interpreted by some as a plot to rock the boat and sabotage the HA’s plan to raise funds in the financial markets — so as to further embarrass then Hong Kong chief executive Tung Chee-wah’s administration.

Sadly, time has proven that I was right, and the public is now paying a high price for the HA’s mistake.

The reasons why I was so opposed to the idea at the time were crystal clear:

First, selling all the valuable assets under the HA to Link for as little as HK$22.2 billion was clearly violating the public interest and constituting a transfer of benefits from the government to large institutional investors.

Second, as a public company, Link would only answer to its shareholders rather than grass-roots residents in public housing estates.

As a result, it would become increasingly profit-driven and commercially aggressive and would definitely raise the rent for tenants in its shopping malls substantially, putting most of the small neighborhood stores out of business.

Third, to maximize its profits, Link might sell some of its less lucrative assets, such as shopping malls with less foot traffic and less-used parking lots, depriving our fellow citizens of their access to these public facilities.

Unfortunately, all of my worst nightmares about Link REIT have come true.

For example, over the past decade, Link has renovated most of its shopping malls and introduced an increasing number of medium-level-to-high-end retail and catering chains into its malls, because they have more promising prospects for high returns.

It has also outsourced the management of many of its public wet markets and changed the business model of these markets by eliminating small vendors that used to provide low-priced food and daily commodities for residents of public housing estates.

As a result, not only have tens of thousands of small neighorhood stores been forced out of business, but overall consumer prices in public housing estates have also been driven up significantly, and grass-roots and low-income families are at the receiving end of Link’s aggressive and profit-driven business approach.

Since 2014, Link has been selling assets — four shopping malls and their parking lots — and so far has made HK$1.239 billion in cash.

The new owners immediately put the parking spaces in those malls up for open sale one by one, an outright violation of the ruling of the Court of Final Appeal in the judicial review concerning Link REIT, which said priority must be given to residents of public housing estates when it comes to the use of the accompanying facilities.

Car parks obviously fell into this category.

Link is no longer a humble real estate trust that guarantees stable returns for investors, as it was originally intended.

Rather, it has now turned into a profit-thirsty monster that answers only to powerful institutional investors, such as global hedge funds.

Continuing to provide affordable commodities and service for public housing estate occupants is apparently no longer on its agenda.

Recently, some people, including hypocritical politicians who have publicly regretted having given the green light to Link REIT in 2004, have been calling on the government to reacquire the trust fund with public money, undo everything and make its shopping malls affordable for public housing estate residents again.

It might sound a pretty good idea, but again it is just another publicity stunt pulled by politicians to create an impression that they are doing something to put things right, because anybody with the least financial knowledge would understand that it won’t work.

Our penny-pinching government won’t even spend HK$10 billion to buy back the West Harbour Tunnel to solve the traffic jam problem on Hong Kong Island once and for all, so why would it be willing to spend over HK$100 billion to buy back Link?

Given the size of Link REIT, I believe the only way to tame this monster right now is by invoking Article 4(1) of the Housing Ordinance and filing a judicial review again to bring it back into line.

This article appeared in the Hong Kong Economic Journal on May 11.

Translation by Alan Lee

[Chinese version 中文版]

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Former radio talk show host; Columnist at the Hong Kong Economic Journal

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