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Suburban houses - Source: ONE News -
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The property market was expecting the worst but that has not arrived according to one analyst, says ONE News Business Reporter Nadine Chalmers-Ross.
However, not all players in the property market will be happy.
From April 1 next year, depreciation deductions will be denied for buildings such as rental housing and office buildings with an estimate useful life of 50 years or more.
That depreciation would be denied on rental housing was almost a given as the government looks to remove the investment bias towards rental property.
What was unclear was whether it would also include commercial property - confirmation that it does is bound to go down like a lead balloon with the sector.
Property Council - "devastating decision"
Before the budget the Property Council was arguing that its
research showed that while land prices appreciate, commercial
buildings do depreciate.
They alleged that because 80% of commercial property is owned by
the businesses that operate in them, denying it equates to raising
the company tax rate by 2-percentage points - negating the effect
of the government's decision to cut the company tax rate from 30 to
28%.
Property Council chief executive Connal Townsend called the
decision 'devastating' and says commercial property owners are
already hunched over their books trying to work out how the
depreciation changes, combined with changes to PIE tax rates and
the drop in the company tax rate will affect them.
He estimates for listed property trusts distributable earnings
could be impacted by between 4 and 7%.
Their concerns don't end there.
Their attention now turns to the review flagged in the budget of
the depreciation allowances of building fitouts - something they
are concerned will turn into a 'blatant tax grab' which could
reduce the incentives to invest in commercial buildings.
They also claim that commercial property owners will bear far more
of the burden than residential property investors.
AMP reacts
Pre-budget analysis by AMP NZ Office Trust, one of the country's largest listed commercial property investors, indicated that the cost to trusts like theirs of the removal of depreciation would be between 8 and 10%.
They say that unlike residential landlords, the commercial property market is simply too competitive for those additional costs to be passed on.
In fact, Treasury estimates also appear to indicate that residential property investors' ability to pass on the cost will also be minimal - with rents rising about 1.4-4% more than they otherwise would have over the next three to five years.
Analysis done by accountants Gilligan Rowe suggests that a residential landlord with a $250,000 mortgage on a $300,000 apartment will go from an annual cash-positive position of $808 to a annual cash-negative position of $515 when unable to claim depreciation.
Gilligan Rowe and Associates director John Rowe says while the property market dodged the bigger bullet - the ring fencing of tax losses - "there will still be a raft of mortagee sales from highly-geared investors who were relying on depreciation" to balance their books.
John Rowe argues that depreciation, while it does do something to take the shine off property as a tax-smart investment, will not improve the attractiveness of other investments like the sharemarket and finance companies by comparison.
Rowe says the share prices of listed property trusts may suffer in the wake of this announcement.
Add a Comment:
Post new commentlauzyeah said on 2010-05-27 @ 14:22 NZDT: Report abusive post
I am coping now, just, with prices as they are, but once they go up im going to struggle.and if it wasn't for Working for families, i would have to be on a benefit, and im sure this is the case for thousands of parents.i'm working to get ahead, and im doing a damn good job too, would you rather they cut WFF and have thousands back on the benefit,using more money? think about it
westy mum said on 2010-05-24 @ 07:30 NZDT: Report abusive post
WELL WE ARE REALLY STRUGGLING NOW FAMILY OF SIX ONE PARENT WORKING WE CAN BEARLYH AFFORD FOOD WEEKLY NOW WE DONT DRIM\NK HAD TO GIVE THAT UP WE DONT SMOKE TO DEAR, WE HAD TO GIVE OUR CAR UP WE COULDNT AFFORD GAS SO WE USE THE TRAIN WE ARE WE GUNA GET A BACK COME ON IF IT WASNT FOR THE WORKERS OF THIS COUNTRY WHERE WOULD WE BE
entwine said on 2010-05-23 @ 20:32 NZDT: Report abusive post
Being a single 40+ female, with no children I think the budget will be of benefit to me. To be honest, I was a bit sick of the previous Governments working for families etc. We all have choices in life, why should I pay via my taxes for someone else deciding to have children? I struggle to make ends meet too!
Juanita01 said on 2010-05-21 @ 17:36 NZDT: Report abusive post
This is a step in the right direction. If people can not afford to have these childen, then stop. Stop complaining that things are going to cost more, stop spending! People have to start taking responsibility for there actions and stop expecting the government to hand them everything.
lauzyeah said on 2010-05-21 @ 15:50 NZDT: Report abusive post
I am a single mother of 2 children both under age 4, i am 23 , i am not on a benefit, and i am working to raise these boys. I cannot afford to stop working and go study to get a better job, if i did, i would have to go on the benefit, which would cost the government and tax payers more money. the government wants people off the benefit and working, but now have raised tax on everything, making it a hell of alot harder to do so.