I tend to think that leasehold properties are like melting icebergs that eventually become vapour. Freehold is yours (REIT’s) forever.
How does it impact your investment decisions?
It is something I bear in mind, and it would be preferable to only own freehold properties. But this is not always possible, particularly in SG.
Ultimately we are in the hands of the REIT managers, and the competent ones will mitigate the effects by early lease renewal, capital recycling and having a mix of freehold and leasehold properties.
There are cost issues involved. At the end of a lease, you have to restore the land to its original condition. The restoration costs have to be incorporated in your calculations. Freehold does not require you to do that explicitly, but you will not be optimising revenue if you leave the building to rot.
Glass full or Glass empty. Everything has a value including the premium you are paying for freehold vs leasehold.
I tend to think it is often fear that motivates one to even consider seeing it as a “mountain” vis-a-vis a “melting iceberg”. One needs a very logical mind to distinguish the facts and figures and not be prone to visual illusions, especially of this nature. Sometimes, it may well be a mirage.
Bobtravs says in all. The truth is in the pudding and how the REIT managers deploy their resources efficiently.