Can rent control protect small businesses?: Opinion

Last year, the number of food and beverage (F&B) business closures in Singapore hit a 20-year high at 3,047, and it is showing no signs of slowing. Average monthly closures in the first quarter this year are already above 300.

In recent weeks, several of them have made the news: Flor Patisserie is closing its Siglap outlet after a 57 per cent hike in rent; the Cat Cafe at The Rail Mall is bowing out after facing a 50 per cent rental increase.

Such eye-watering increases raise the question of how much rent is too much, and whether the government needs to intervene – even if it has espoused the merits of a free market for years.

To be sure, a free market allows resources to be allocated efficiently, keeping the market competitive and preventing prices from being artificially distorted.

However, a free market also engenders a competitive environment that may sometimes disadvantage smaller players. Corporations driven by greed would be inclined to maximise profit, sometimes at the expense of public interest.

Of course, landlords, as investors in the commercial property, would no doubt want to seek higher returns to recover their funds, but this surely needs to be done within reasonable limits. In some cases, some landlords are even willing to leave their property empty until they have found a tenant willing to pay what they are asking for.

A key question here is whether we consider small businesses as having intangible benefits for the public that are worth protecting.

Recall your favourite cafes, bakeries and mom-and-pop shops. Unlike large chain stores, the shop owners are often embedded in the day-to-day running of their businesses, becoming a familiar fixture of the neighbourhood. 

Over the years, they not only sell their bakes and wares, but also grow into a favourite joint for neighbours, helping to foster a sense of community while adding character and charm.

They are also an expression of the Singaporean entrepreneurial spirit, and their owners should be celebrated for taking the leap to start their businesses despite knowing full well the city-state’s high-cost environment – from rental to manpower to ingredients.

This is why, when yet another home-grown business succumbs and an international chain – whether a fast-food joint, a bubble tea store or a mala hotpot restaurant – takes over the space, or worse, if the space is then left empty, we should question if we are losing something more profound.

If the idea of “rent control” is unpalatable in Singapore’s free-market economy, then consider this “tenant protection”.

Government intervention in this case would not be about protecting unviable businesses – since in this case, they have presumably been operating sustainably until a rental hike puts them out of business. Rather, the aim should be to create a fairer system that does not give errant landlords free rein to do as they please.

At a time when the cost of living is elevated, ensuring rent does not spiral out of control also helps to keep a lid on prices.

Some ideas to consider are imposing a percentage cap on the amount of rent increase that landlords can impose, or regulations to prevent landlords from unilaterally raising rent without prior agreement. An even lighter touch would be to only impose such regulations in special zones outside the Core Central Region or similar prime areas, so that small shops are at least given a chance to thrive in the neighbourhood.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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