In line with equity markets and listed property globally, the New Zealand listed property sector was weak in May, down 6.7%.
Dividends in the sector are expected to fall in the 2012 full year, the first full year under the new tax regime.
Forsyth Barr broker Tony Conroy said all listed property vehicles (LPVs) had negative gross returns except for National Property Trust, which had an improved unit price outlook given the potential of its management contract being taken on internally.
The major falls for May were Kiwi Income Property Trust (down 9.9%), Goodman Property Trust (down 8%) and ING Property Trust (down 6.4%).
Forsyth Barr had reduced 2012 full-year earnings and dividend forecasts by between 5% and 8% and its valuations of companies had fallen by about 4%.
"Following the Budget announcement, there was a minor positive reaction from the market with most LPVs rallying 1% to 2%.
But the market soon retreated, in line with the general market weakness being experienced," Mr Conroy said.
Most 2010 full-year results for LPVs were adversely affected by higher bank fees and margins and some were starting to be affected by pressure on vacancies, rental levels and incentives.
Several were boosted by lower effective tax rates than forecast, something that would reverse significantly in 2012, he said.
In terms of the full-year results, the best were the relatively flat returns - both in the actual numbers and earnings per share - from ING Property and National Property Trust.
On average, Forsyth Barr's sector forecasts were downgraded 2.9% after the results.
"While we had confirmation of the removal of depreciation on buildings, there remains uncertainty around the possible adverse impact of the IRD's review of the split between depreciation on buildings and on fit-out," Mr Conroy said.
The market was pricing in further falls in asset values and the depreciation changes, he said.
However, it was still hard to see a catalyst for the sector in an environment where both asset values and dividend levels remained in decline.
The sector would continue to provide attractive dividend yields through the cycle and Forsyth Barr preferred larger capitalisation exposures with prime assets.
Industrial was the firm's favoured sub-sector, Mr Conroy said.
Craigs Investment Partners broker Chris Timms said the listed property sector had suffered from uncertainty in recent months as the market awaited details of the Government's tax reform package.
The key changes for the sector were the removal of building shell depreciation for assets with an expected life of 50 years and the reduction of the corporate tax rate from 30% to 28% - sooner than expected.
Craigs' initial findings suggested 2012 full-year dividends would fall between 2.3% and 7.4% as a result of the higher tax rates being paid by listed property trusts.
"Given that the uncertainty of the likely tax implications has passed, and investors now have clarity on what the impact on distributions and valuations will be, we believe it is an appropriate time to refocus on sector fundamentals," Mr Timms said.
"We regard property as a vital asset class within balanced portfolios.
It provides a reliable income stream and relatively lower levels of price volatility."
Listed property offered more diversity and liquidity than direct holdings, while still providing a degree of diversification from equities, he said.
