What New Zealand’s new COVID-19 tax measure means for real estate

As the COVID-19 pandemic upends real estate markets around the world, governments have been stepping up to offer some stability with fiscal measures aimed at driving investment after lockdown.

In New Zealand, a recent policy allows investors to claim tax relief on a whole building structure, rather than just fixtures and fittings.

For most, the first applicable tax year won’t end until 31 March 2021, so any tax relief policy won’t have any immediate effect. However, its impact on the future of the country’s property market should not be underestimated, says Dale Winfield, head of valuations and advisory, JLL New Zealand.

“Although we won’t see an immediate impact, this move will be a major incentive for new development in New Zealand, and deliver much needed new stock.”

The new measure, known as depreciation deduction, forms part of a NZ$12 billion-plus fiscal package aimed at stimulating economic recovery in New Zealand as the country grapples with restrictions aimed at stopping the spread of COVID-19.

Until the global pandemic forced the country into lockdown, investment decisions had been predicated on an extended cycle with record-low interest rates and consistently positive market fundamentals, including historically low vacancy rates. This was foreshadowed only by rising global economic uncertainty, some regulatory challenges and a tightening of bank finance.

While the true impact of the global pandemic on real estate markets is unknown, the new tax policy may help establish a foundation for recovery.

By allowing investors to claim tax relief against the value of commercial and industrial property at a level of 2 percent a year, starting April 2020, the investment case is set for new property development, as well as investment in modern, quality commercial buildings, Winfield says.

“Prior to the government policy change, an investor could claim depreciation on fixtures and fittings at the end of the first full tax year. But now with the new depreciation deduction, the investor can also claim on the building structure which, on a property valued at NZ$60 million, with a build cost of around NZ$55 million, would bring NZ$660,000 of additional depreciation to claim. The change is significant.”

The government’s fiscal measures will also help inject much needed new stock into the sector, says Winfield.

“A substantial proportion of existing stock is now over 20 years old, and our city centre office and major city-region industrial markets are crying out for quality stock from which to operate from.

“Sustaining long-term property development in New Zealand is paramount and it is vital we look to the future with policies like these, and take advantage of modern technology to provide New Zealanders with best-in-class property in which to live, work, and play.”

Click to view the JLL COVID-19 Resources page