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09-01-2016, 01:40 PM
(This post was last modified: 10-01-2016, 12:53 AM by CY09.
Edit Reason: edits
)
Yes that is my main concern for sg reits. How much is sla or jtc going to charge when your lease expires. For city areas, your renewal of land lease for 99 years is going to be hefty as the government values land according to market rate
Furthermore when your land lease goes below 40 years, valuation of property falls a lot in our market. Assets value will be so much lower. With lower asset value, the amount of debt the ppty can be encumbered with will be reduced. This means a lower amount of bullet loan that can be borrowed, hence reits have to be prepared for that. However, as of now, many REITS simply rollover the current amount of loan into another bullet term because depreciation of their ppty is still very low as their ppty has "not fallen off the cliff". Once the ppty starts depreciating more, less cashflow will be present for distribution as they have to pay the principal amount of debt. Some may point out that they can buy new ppty to ensure the average years of lease remains; however that means needing money/equity to fund such new purchases.
The oldest ppty i can think of is Raffles City which has 63 years of lease left. It will be interesting to see how such REITS handle when many of their ppty edges towards less than 50 years. This is why for young investors who are dreaming to accumulate a wonderful REIT portfoilo of SG ppty so as to have passive income for retirement in 30-40 years. Be prepared for such surprises as yields may not be that nice and you will be confounded by rights issues/ dilution by placements.
Link for valuation of leasehold:
http://smartpropertybuyer.blogspot.sg/20...f.html?m=1
Furthermore when your land lease goes below 40 years, valuation of property falls a lot in our market. Assets value will be so much lower. With lower asset value, the amount of debt the ppty can be encumbered with will be reduced. This means a lower amount of bullet loan that can be borrowed, hence reits have to be prepared for that. However, as of now, many REITS simply rollover the current amount of loan into another bullet term because depreciation of their ppty is still very low as their ppty has "not fallen off the cliff". Once the ppty starts depreciating more, less cashflow will be present for distribution as they have to pay the principal amount of debt. Some may point out that they can buy new ppty to ensure the average years of lease remains; however that means needing money/equity to fund such new purchases.
The oldest ppty i can think of is Raffles City which has 63 years of lease left. It will be interesting to see how such REITS handle when many of their ppty edges towards less than 50 years. This is why for young investors who are dreaming to accumulate a wonderful REIT portfoilo of SG ppty so as to have passive income for retirement in 30-40 years. Be prepared for such surprises as yields may not be that nice and you will be confounded by rights issues/ dilution by placements.
Link for valuation of leasehold:
http://smartpropertybuyer.blogspot.sg/20...f.html?m=1
