Opportunity zones present a great tax advantage to real estate investors in the US housing market. So it’s no surprise that once more guidelines were put in place and clarified earlier this year, demand from investors would shoot up in these regions across the nation. The result? Property prices have increased significantly.
Study: Real Estate Prices Are Rising in Opportunity Zones
The deadline for the 2017 tax reform provision on capital gains is approaching (end of 2019), and over 136 Opportunity Zone Funds have been formed already. With billions in cash investments raised, these Funds are entering the property market. The rush to ensure that their investors will be able to benefit from the protection of 15% of their profits from other investments including stock or real estate property has caused heated competition in the designated zones.
It’s a pretty common real estate trend: property prices rise with demand. And a recent study proves that this is exactly what is happening in Opportunity Zones. The Massachusetts Institute of Technology’s Center for Real Estate and the Netherlands’ Maastricht University School of Business and Economics studied the market trends of Opportunity Zones and found that for properties requiring redevelopment, prices went up 14%. For vacant development sites, prices went up 20%.
Of the almost 9,000 designated tracts, most are low-income areas which are sure to benefit. However, in certain areas, like in downtown Los Angeles, Boston, and Williamsburg (an NYC borough neighborhood), the designation of Opportunity Zones was met with criticism. Opponents claim that real estate investors will drive up prices in what are already hot housing markets. So while the study shows that not all property prices have been affected, there is a clear surge when it comes to certain types of property that qualify for the tax break.
And even though there is a deadline set for December 31st, 2019, it is a deadline for those who wish to benefit from the 15% tax break as they are required by the set regulations to hold their investments for 7 years. However, experts believe the demand is not set to slow down even after the deadline. There is a second provision that offers a 10% break for those who hold investments in OZs for at least 5 years.
Steve Schneider, a real estate tax specialist at Baker McKenzie in Washington weighed in:
You’re still getting 10. I don’t think that’s going to stop people.
There is even talk of an extension of the original December 31st, 2019 deadline by one year, to 2020. The original authors of the Opportunity Zone legislation, Sens. Cory Booker (D-N.J.) and Tim Scott (R-S.C.), are, however, still working out the details for this.
If you are an investor still looking for a place to invest before choosing an Opportunity Zone Fund, here are the 21 Best Opportunity Zones to Invest in Real Estate in the US.
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