Depreciation cuts - investors brace for impact

The National Party’s recent announcement to remove the tax depreciation for Commercial buildings has been met with disappointment and concern by the Property Council and commercial building owners alike. While the policy is in line with the Labour Party’s policy, many owners believe removing depreciation will have a flow-on effect for ageing buildings and could see a reduction in new development projects in the pipeline.  

Council Chief Executive Leonie Freeman says, “Removing depreciation is a raid on long-term maintenance funds for buildings and increases 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 increases for businesses. National and Labour’s proposed policies come with a price tag of half a billion dollars for the property sector, and both parties fail to see the consequential impacts,” she said.

The policy is set to generate $525 million a year in revenue for the government coffers. Both residential and commercial property owners could depreciate their buildings until the John Key led government removed it in 2010. In 2020, Labour reinstated it for commercial buildings only as a Covid economic stimulus measure.

Property Brokers' Commercial General Manager Lance Judson believes it’s a step backwards. “We’ve got 113,000 commercial buildings in New Zealand, which means there will be a lot of people negatively affected by this policy. Landlords, tenants, and business people are already doing it tough, which doesn’t help. I don’t think either party has thought about the long-term consequences for the market and are instead going for a quick cash injection.

The result could be a cooling of the commercial property market from an investor point of view, and the competitive edge commercial property and New Zealand has had in the international arena could be lost”.

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