Commercial

Raid on commercial investors depreciation of assets detrimental

The commercial property sector is deeply concerned about Labour and National policies to remove depreciation for commercial and industrial buildings.

Friday, September 08th 2023

“Depreciation of commercial and industrial properties is critical for the future health of New Zealand’s built environment,” Leonie Freeman, Property Council chief executive says.

She says the proposed policies to remove depreciation are a raid on long-term maintenance funds for New Zealand’s buildings, running the risk of rundown or even derelict buildings across the country.

“If depreciation is removed, property owners tell us they will have to reprioritise expenditure, which when added to rising costs such as insurance, mortgage and property rate rises, will likely cause rent rises for businesses” Freeman says.

“Both parties have been inconsistent on depreciation of commercial buildings.”

Previous indications from the Government were that depreciation was introduced as a permanent measure, and the property sector planned future developments based on this premise.

The National Party has also announced that depreciation will be extended to residential properties, such as build-to-rent, if elected. “These inconsistencies create uncertainty in a market that is already facing significant challenges.”

Freeman says there are multiple challenges facing the property sector – from interest rates and inflation to a reduced construction pipeline which affects jobs for Kiwis. Removing access to depreciation will place another challenge on our road to sustainability by making it much harder to maintain and upgrade buildings, she says.

The proposed policies will come with a price tag of half a billion dollars for the property sector. However, Freeman says that both Labour and National have failed to see the consequential impacts.

“Removing depreciation will have flow on effects of aging buildings, a reduction of new projects in the development pipeline, and increased costs to businesses who occupy buildings. Without commercial and industrial buildings having access to depreciation, there is significant risk to forward investment. Put simply, less development in the pipeline.”

Property Council members have given examples where they have paid more than half of a building’s value for seismic strengthening upgrades. “The last thing we want to see is deprivation of investment in important seismic strengthening upgrades” says Freeman.

The economic evidence from Inland Revenue indicates commercial and industrial buildings do depreciate in value.

“Our members are concerned this will cause the commercial property sector to lose its competitive edge from an investor standpoint against other developed countries, in which property owners are able to depreciate their buildings.”

She says it is disappointing both Labour and National have gone for a quick cash injection, rather than thinking through the consequences of removing depreciation. Access to depreciation allows for investment in the long-term maintenance and safety of our buildings. For New Zealand to have a sustainable and resilient built environment, it is critical that depreciation remains.

Comments

On Thursday, September 07th 2023 11:17 pm Krish Krishna said:

As a former Corporate banker and Mortgage Adviser of 40 yrs, i have seen thousands of property accounts but i don't recall seeing investor keeping the depreciation deduction (long term maintenance fund) in a separate funding account. Generally there is a case of applying for top up loans to do that. But I do see that there will be collateral damages in lessee costs at renewal times.

On Sunday, September 10th 2023 3:16 am Ralph Ede said:

Leonie Freeman and the Property Council must have sensed that when depreciation was removed from residential buildings that commercial would also be targeted. After all, residential buildings wear out to. New home owners are often shocked to find that construction materials such as cladding and windows are only required to last for 15 years and roofs only 20-25 years.

Most Read

SBS FirstHome Combo 4.39
Unity First Home Buyer special 4.69
Co-operative Bank - First Home Special 4.89
TSB Special 4.99
ANZ Special 4.99
ASB Bank 4.99
Kiwibank Special 4.99
Westpac Special 4.99
AIA - Go Home Loans 4.99
ICBC 4.99
Co-operative Bank - Owner Occ 4.99
Nelson Building Society 4.97
Kainga Ora 4.99
ICBC 4.99
Co-operative Bank - Owner Occ 4.99
Wairarapa Building Society 4.99
Unity 4.99
TSB Special 4.99
ANZ Special 4.99
ASB Bank 4.99
Westpac Special 4.99
AIA - Go Home Loans 4.99
Westpac Special 5.39
ICBC 5.49
BNZ - Classic 5.59
Co-operative Bank - Owner Occ 5.69
ASB Bank 5.69
SBS Bank Special 5.69
AIA - Go Home Loans 5.69
BNZ - Std 5.79
Kainga Ora 5.79
TSB Special 5.89
Kiwibank Special 5.89
SBS FirstHome Combo 4.19
AIA - Back My Build 4.44
CFML 321 Loans 5.25
Co-operative Bank - Standard 6.20
Co-operative Bank - Owner Occ 6.20
Heartland Bank - Online 6.25
Kiwibank Special 6.50
Kiwibank - Offset 6.50
Kiwibank 6.50
Unity 6.64
TSB Special 6.64

More Stories

Four decades of 6-7% yearly house price growth ending

Friday, March 21st 2025

Four decades of 6-7% yearly house price growth ending

New Zealander’s reliance on property capital gains in the mid-single digits is at an end.

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

Friday, January 31st 2025

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

It’s been years in the making and former real estate agent Mike Harvey is now coming to market with his platform matching buyers and sellers, an offering he says will be a gamechanger for the industry.

Leaving last year's stumbling housing market behind

Friday, January 17th 2025

Leaving last year's stumbling housing market behind

As interest rates ease and job losses climb, New Zealand’s housing market faces a mixed year of modest growth, with conflicting forces shaping the outlook for homebuyers and investors.

Don’t bet on house prices rising faster than incomes

Wednesday, January 15th 2025

Don’t bet on house prices rising faster than incomes

Former Reserve Bank Governor and National Party leader Don Brash says there are grounds for believing that house prices may finally have ended the three-decade period when they rose significantly faster than incomes.