Mailbox: Rising rents driving up inflation?

Mailbox: Rising rents driving up inflation?

According to the Economist Intelligence Unit, Singapore is the world's most expensive city ("Take heed of heat over rising costs"; May 25).

Although its survey was targeted at expatriates, we should not discount it if we want to attract the right talent from all over the world, as this finding could dissuade them from coming here.

The report ("High rents in hot spots due to competition"; last Thursday) highlighted the vulnerability of businesses to hefty yearly rental increases.

Very often, rental cost is the single most expensive item for business owners renting shop space in shopping malls. This has forced many out of business, or caused them not to renew their leases as they are unable to afford the higher rents.

Many others, such as food and beverage establishments, choose to cut costs by reducing food portions or using cheaper ingredients.

Those who struggle to stay put may pass on the increased cost to customers by raising prices. This presents a very real situation where inflation could be attributed to rising rentals.

The attraction of setting up new branches or new shops is always there for business owners. Thus, it is no surprise that demand for shop space is insatiable, and property owners have no lack of takers for vacated shop space.

They have the market power to decide on the amount of rental increase each year, thereby artificially driving up inflation.

In fact, property developers also have a role to play in pushing up private housing prices, in response to the insatiable demand for property investment, thus making private property prices here among the highest in the world.

The Government has introduced property cooling measures to curb the rise in property prices.

It ought to also consider introducing measures to ensure that property developers do not unintentionally raise the national inflation rate by riding on the insatiable demand for shop space.

Edwin Lim

This article was first published on June 05, 2014.
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