This is a brief reply to an email from a reader on a topic which was rather hotly debated before: here.
Hi kh,
Investing in REITs, we have to understand something very basic and that is REITs distribute income. REITs don't distribute earnings. So, they do not account for depreciation or amortisation.
When we look at REITs, we mustn't look at them like how we would look at stocks where we look at earnings per share (which takes into account depreciation and amortisation).
When we buy properties, if they are not freehold, then, there is a lifespan.
So, if we buy a HDB flat, theoretically, at the end of its 99 years lease, we have to to return it to HDB and the value of the flat becomes zero. So, on average, theoretically, it depreciates by slightly more than 1% per year.
To make investing in a property which has ......