Every third dollar changing hands on the Singapore Exchange is because of someone buying or selling units in a real estate investment trust (Reit). But has the city's Reit mania gone a bit too far?

The coronavirus pandemic has raised hard questions that have only simmered under the surface until now.

As an asset class, Reits have blossomed in the Asian financial centre, where land is in short supply. Singaporeans love property, and the idea of owning units in a trust that passes at least 90 per cent of rental income to investors seemed like a better alternative to parking cash in a bank account, especially in an era of near-zero interest rates.

Reits also became popular because the tiny island doesn't have many opportunities at home for people to invest in growth.

A budding love affair with all things digital and fintech could have infused some youthfulness into the kind of risks the mass affluent are comfortable owning. But before they could blossom, the virus came.

It's unclear if the economic destruction will destroy the fledgling start-up culture by making Singaporeans averse to risk, "seeking the safety of 'iron rice bowls'", as former civil servant Devadas Krishnadas puts it.

But something doesn't seem quite right even in the world of institutionalised rent collection. Here, too, the pandemic is forcing a revaluation. If a store is unable to sell its wares because people are scared to go out or the Government doesn't want them to, is a six-month moratorium on rents fair?

Owners received property tax rebates of up to 100 per cent when the disease first threatened to decimate travel and tourism, but many didn't pass them on fully.

Struggling tenants became upset, so Singapore passed a law in April ordering commercial owners, including Reits, to pass on tax remissions unconditionally and give a moratorium on rent payment if any merchant requests it.

Landlords are worried. Such a deferment means a near-term cash-flow shock, future bad debts and a degrading of Reit finances that could, in their words, "destabilise the banking industry and Singapore's financial ecosystem".

Besides, doesn't capitalism require those who can't honour contractual obligations to make way for those who can?

The "creative destruction" argument rings hollow when advanced by landlords who have no problem enjoying state support themselves. Covid-19 will go away one day, but the friction between tenants and landlords will remain.

About 10,000 small and mid-sized tenants have come together to demand a fair tenancy law. The conflict would be productive if it led to a search for new models of risk sharing.

Looking within the industry may be a good starting point.

Singapore-listed Sasseur Reit owns retail outlet malls, where the likes of Burberry, Coach and Salvatore Ferragamo hawk new and out-of-season fashion. The properties are in China, and they solve a specific problem: Customers are compensated (and the retailers penalised) heavily if merchandise turns out to be fake.

But as chief executive Anthony Ang explains, Sasseur Reit differs from Singapore's other institutional landlords in that instead of paying rent to the Reit, tenants share roughly 15 per cent of their revenue with its Chinese parent. The so-called entrusted manager keeps some of it to run the properties, and shares a fixed sum and a sales-linked variable component with the Singapore trust to pay out to unit holders.

This risk-sharing formula, which is still fairly uncommon, passed its test in the first quarter, when China took the brunt of Covid-19 closures.

The variable portion of the Reit's revenue plummeted by 55 per cent, in line with tenants' sales, but the fixed rental went up almost 4 per cent, and the overall take declined by much less. Nervous investors who sold off the stock in February went back in after China reopened.

Can the template be copied? Sasseur requires a natural churn: Leases accounting for 65 per cent of revenue will expire this year, offering the Reit a chance to bring in new brands to titillate the customer with novelty.

Singapore landlords typically have three-year contracts, the time a supermarket anchor tenant needs to stabilise footfall.

Even if an art-house model does not fit a suburban Singapore mall, carefully curating the mix of tenants and taking an interest in their success may be the way forward.

The pathogen is reshaping habits: Mundane transactions will move online, but experiential sales, including luxury and mass-market fashion, may turn physical with a vengeance. People will use shopping excursions to signal wellness - not so much to others as to their own locked-down psyches.

In the post-pandemic world, Singapore Reits could more deftly stretch their profits if they stopped singing from the hymn book of cut-throat capitalism and embraced a more trusting relationship with tenants.

BLOOMBERG

• The writer is a Bloomberg Opinion columnist covering industrial companies and financial services.