This year’s budget promises to be the most significant for commercial property for many years. While there are potential positives in terms of, for example, reduced personal tax, attention is now focused largely on the possible removal of building depreciation allowances. The tax working group note that if empirical evidence shows that buildings do not depreciate in value then removal of allowances should be considered. Our data suggests that buildings, or at least commercial buildings, do depreciate. Property owners will be hoping that the budget reflects this view.
Around 1.37 million people now have Kiwisaver accounts, so this would be an important issue even if only listed property companies and their shareholders were affected. But the majority of commercial property is not owned by listed entities or private investors, but by private businesses.
Separating land value movement from improvements, or building, value movements, given the endless variety of heights, and floor area ratios, is a virtually impossible task on a market-wide basis. Different densities can result in say half a square metre of industrial building for every one square metre of land, to ten square metres of office building for every one square metre of land. Thus changes in land value have a relatively larger effect on industrial property than office property. However, as anyone who has carried out a residual valuation or a development feasibility study will tell you, land value is a product of the value and cost of what is built on the land, so the two elements should move in tandem. Land and buildings value trends are therefore a reasonable proxy for building only value trends.
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Sales,
Office Leasing,
Retail,
Industrial,
Corporate Solutions,
Auckland Office,
North Shore Office,
South Auckland Office,
Wellington Office,
Christchurch Brokerage,
Dhilan Balia,
Alan McMahon