Orchard Road is dying and it’s all because of our government?

By May 16, 2017Current

TL;DR – Everything also government’s fault.

Orchard Road is dying.

The crowds that used to throng the shopping belt no longer exist. Vacancy rates of the malls have risen. At some of the older malls, more than half the shops on some floors are empty. It’s not a good time to be operating a business in that area. Worse if you are the owner of a mall there. In order to continue to survive, you would really need to be pretty creative.

Unfortunately, not everyone thinks that way. Instead, some think that it’s the government’s fault. And therefore the government should be the one to come up with the solutions. That seems to be what Choo Meileen, the executive director of Cathay Organisation thinks.

In a forum letter to the Straits Times, Choo confused cause and effect. She said:

“There is not much point in hyping up Orchard Road with the proposals mentioned if no one is going to shop there.”

Nothing special about Orchard Road

Perhaps the reason no one is shopping in Orchard Road is because, as ST’s editor-at-large Han Fook Kwang pointed out, there is nothing special about Orchard Road anymore. Why bother going there if we can get pretty much the same things in the large suburban malls?

Choo then went on to criticise suggestions that Orchard Road should include a variety of smaller shops that are more interesting. She said that those shops can never afford the rent. She explained that landlords have to charge high rent because of the high costs of development in Singapore.

It is not the landlord who is the beneficiary of all these fees and costs; it is the Government.

I am sure landlords would love to have different offerings that would distinguish their malls, but unfortunately, it is the usual suspects who can afford to pay the rents to give developers a chance to recover costs and have some form of return for the risk they take.

Choo elaborated that those high costs include submission fees, fees to engineers, massive development charges to the Government, and the high cost of construction and labour. She then made the bizarre claim that it is the Government that benefits from all these fees.

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But is it really ALL because of the Government?

But, how does the Government benefit from fees to engineers? Or from the cost of construction and labour that goes into developing a mall? Sure. The Government benefits from the selling the land to the developer. And from the taxes of the companies doing work developing and land into malls. But that’s pretty much it. The submission fees are probably just enough to cover the government’s own cost of employing people to go through the submissions and ensure that buildings abide by guidelines and structures are safe and sound.

So we aren’t sure how Choo came to the conclusion that the Government benefits from the fees and costs of developing a mall.

Not everything is the Government’s fault. Not everything can be solved by the Government.

Based on that bizarre claim, Choo then concluded:

“It is the duty of those who create these costs to ensure that the creative ideas and government revenue or needs are never allowed to run ahead of the revenue- generating capabilities of the areas’ tenants.”

That is really strange coming from someone running a business. Did anyone hold a gun to her head, forcing her to build and operate a mall in Orchard Road? That’s right. No one.

If any developer or real estate investment trust (REIT) doesn’t think that the returns justify the costs, they can well decide not to plough in the money to develop a mall at a particular location. And if there is lacklustre demand for construction, or for that plot of land, prices will fall.

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Econs 101.

The developers who have ploughed money into building and operating the malls in the Orchard area should have done their own calculations. They probably worked their sums and concluded that they can make money and earn decent returns on their investment. Surely businesses still do feasibility studies and projected returns?

And for a time, the landlords in Orchard Road probably did earn some obscene returns. Did any of those developers thank the government then? No. Were the risks of developing a mall low back in the days? Probably not. So why is it only now that cost is now an issue?

So what is the problem?

A better explanation of why Orchard Road is facing a long, slow, painful death boils down to two things: greed and stupidity. People saw the boom-boom times. They thought it would go on forever. They thought that doing what other people did in the past would allow them to earn as much money.

But they forget. Times change. Circumstances change. The old approach to retail in Orchard Road is inappropriate today. Sticking to that approach is the sure path to doom. They could have change. They could have adapted. They could have been creative. But they didn’t.

So how can they blame anyone but themselves now that their projections turn out to be wrong? How can they blame anyone but themselves now that they were caught flatfooted by the boom of the eCommerce, growth of suburban malls, the mobility of the digital generation, and the shifting preferences of today’s shoppers? How can they blame anyone but themselves for not looking far ahead enough and put in measures to aggressively adapt to the changing times?

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Let better businesses thrive. Not greedy, stupid ones.

If the landlords in Orchard Road (or any business for that matter) aren’t creative, innovative, and able to adapt to the times, should the government spend money to prop them up? Do you want your tax money to go towards propping up businesses that aren’t creative, innovative, and able to adapt to the times? Probably not.

Instead, perhaps what the government should do, is to let those businesses die. So that businesses more suited for the times, businesses which are more creative, innovative, and adaptable have more space to develop and thrive.


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Author CRC

Working on a startup is a scary crazy process. To destress, I write random stuff.

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