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A guide to the US 'Go Zone'

TMC takes a look at the lucrative opportunities available for international investors in the 'mini emerging market' known as the the US ‘Go Zone'.

Following Hurricanes Katrina and Rita in 2005, the US Congress passed the Gulf Opportunity Zone Act, or GO Zone Act, an important  piece of legislation designed to spur rebuilding in the hurricane-damaged areas of Mississippi, Louisiana and Alabama along the Gulf of Mexico coastline.

The GO Zone Act offers several tax benefits to properties built and placed into service in the GO Zone region after the hurricanes. The incentives are being offered by the government to help bring back life once again to the affected areas and rebuild the economies of these states.  The Key provisions of the act are:

- 50% bonus depreciation available to businesses of all sizes for investments in equipment, non-residential real property or residential rental property.

 - Net operating Loss (NOL) carry-back for qualifying losses extended from 2 years to 5 years.

- Tax-exempt bonds worth about $4.9 billion are available in Mississippi. These tax-exempt, private-activity bonds can be used to finance commercial projects. Participating businesses could save up to 200 basis points in interest costs annually.

- Increased deductions for qualifying tangible personal property for small businesses.

- Tax credits for employee Retention and work opportunity, available to qualifying employers.

- Demolition and cleanup costs expensed instead of capitalized.

- New markets tax credits increased for qualifying investments in low-income communities.

- Increased qualified rehabilitation credits for historic structures.  

But what does this mean in practice?  Basically, the majority of people who lived in the areas most affected by the hurricanes were tenants living in rental accommodation.  These people were displaced by the hurricanes and are now, for all intents and purposes, ‘tenants in waiting'.

So, to get investors to come in and buy up all the new properties being constructed to then rent to the tenants in waiting, the American Government ia allowing investors to:

- Claim back all the money invested against their first years tax liability

- Get ‘cash back' on what they buy

- Buy on government subsidised land and therefore buy property cheaer than market value

- Effectively afford two properties for the price of one and a half

- Pay lower than normal property taxes

- Get in on a government management program, which will look after the property, ensure it is let out, thus produce a rental yield.

The incentives are so attractive that they are only available to those who commit by the end of 2008.  Indeed, investors from all walks of life are already swarming all over the scheme, including movie star Brad Pitt, who has already bought in and is also sponsoring property related programmes in New Orleans. 

Serious need for housing

While the entire state of Louisiana is part of the Hurricane Katrina Disaster Area, the provisions of the GO Zone Act apply only to a limited number of Louisiana parishes, defined as the Core Disaster Area.

However, it is also important to note that the GO Zone reaches far beyond Plaquemines, Calcasieu, Orleans, Jefferson, St. Bernard and the other parishes most devastated by Katrina and Rita (See map at the bottom of the page)

The need for new housing in this area is substantial, and developers have been working to bring projects online as quickly as possible. There is now quite a bit of housing in the GO Zone that is available for interested buyers with major tax and price benefits.

Additionally, there are opportunities for those who are interested in buy-to-let properties. If you want to manage the property yourself or sit back and let a third party take care of everything, there are many buildings and homes that can be rented.

The GoZone is clearly a mini emerging Market that combined with tax incentives, beneficial exchange rates and very low property prices may offer the international investor superb opportunities.

Highly lucrative

Dan Johnson, Managing Director of TheMoveChannel.com, commented: "Infrastructure projects can be highly lucrative at the best of times, but with the added incentives on offer from the US government, there is a significant upside potential for anyone fortunate enough to be in a position to invest.

"Normally, the main difficulty is finding a qualifying project for which the contract hasn't already been one by a company with the ear of the local administrators. But with the GoZone, it should be possible for individual investors in buy to let property to benefit from at least some of the incentives.

"Provided you can get mortgage finance on to gear up your investment, the infrastructure improvements, low priced dollar and government incentives could provide a triple whammy to boost investment returns".

Huge incentives 

A spokesperson for Shelter offshore added: "The GO Zone Act gives international property investors huge taxation and financial incentives to buy in to parts of America under market value and generate an almost immediate and sustainable rental income".

"Opportunities exist across the GO Zone, but make sure any property development project you look at qualifies for the incentives, and speak to a tax adviser about the exact benefits you will enjoy as they can vary depending on your personal status".

Image courtesy of the Louisiana GoZone Business guide: http://www.gozoneguide.com/