Building prices get shaken up

00:54, Jun 06 2014

The drop in the value of commercial buildings in Nelson city with low seismic strength ratings is beginning to show in sale prices, says government valuation service QV.

In some cases, prices have halved, such as a commercial building at 50 Halifax St which sold in March for $456,000.

The building, which formerly housed a range of community groups. has an earthquake rating of only 15 per cent - well below the minimum of 34 per cent of the new building standard. It sold previously in March 2007 for $890,000.

Some buildings had been discounted by more than the cost of bringing them up to standard, QV registered valuer Geoff Butterworth said.

QV warned in 2012, when it briefed the Nelson City Council on the provisional, unaudited results of the 2012 Nelson revaluation, that the city's 1429 business properties (commercial and industrial) showed a provisional decrease of 4.8 per cent in land value and 2.4 per cent in capital value.

This was a result of new earthquake strengthening requirements introduced after the Christchurch quakes.


Under new building standards, the onus is on all commercial building owners to ensure their properties are rated at 34 per cent or more of the new standard in terms of earthquake strengthening.

Butterworth said several commercial buildings in the Nelson CBD were built before the 1980s, when the first earthquake strengthening requirements were introduced, so many of them had ratings below the 34 per cent minimum.

"If buildings do not meet the minimum standard, they need to have work done to bring them up to the minimum rating or above, and this can be a very expensive process.

"What we are seeing is that some buildings with low ratings are either being demolished or sold ‘as is', as it is not cost-effective for owners to carry out the work to bring them up to par."

He said that in other cases, owners were biding their time with vacant buildings while they decided what to do.

Butterworth said there was more at stake than just the cost of bringing a building up to standard. "The cost of lost rental income and contingency costs if building exceeds the budgeted amount, which is common with construction, also has to be taken into account."

The building at 52 Halifax St, owned by the Dayman Family Trust, was demolished last weekend to make way for the expansion of a new Nissan showroom operated by the Nelson Bays Motor Group.

The building, previously occupied by AMI insurance and Telfer Young, had a low seismic rating.

Dayman trust spokesman Garry Dayman said the building was assessed by an engineer and came in "well below" the 34 per cent threshold.

Governing director of Gibbons Construction, Roger Gibbons, said the new climate had presented a "major headache" for building owners.

Gibbons Construction recently opened a new commercial building in Halifax St incorporating a damage-resistant design system. It surpasses modern earthquake standards.

Gibbons said equally significant was the impact of the Government's changes to the depreciation rate of buildings, particularly those less than 50 years old and now deemed to be earthquake-prone.

Buildings with an estimated useful life of 50 years have until recently been able to be depreciated for tax purposes, at a rate of 2 per cent per year. There is now no depreciation.

Gibbons said the new tax treatment would make building owners think harder about their options.

"It's a big issue when you consider, for example, a building that might be worth $1 million and it's going to cost $500,000 to strengthen. The tax treatment of that is not repairs but considered capital [improvements]."

Dayman said this essentially meant there were no tax breaks for commercial building owners.

He said it was tougher for investors who had entered the market in the last five years, particularly when banks were lending up to 60 to 65 per cent of the value of a building.

"If you geared to that, then find you have a building with seismic issues, how do you fix it? With more capital or sell it?

"The banks and insurance companies are holding the cards."

Butterworth said some banks would not lend to new clients wanting to purchase buildings with an earthquake rating below 67 per cent, and this could also have an impact on the value of a property.

The Nelson Mail