Property Depreciation Schedules - The New reality

Should You Buy a Property as an Investment

When it comes to deciding what to do with your hard earned savings, the choice between investment opportunities can be difficult. There are a number of factors that might convince a potential investor to invest in one opportunity over another. 

In particular, property as an investment is something that has been extremely profitable for a number of people. With this being said, in deciding whether or not you should buy property as an investment, you should consider various factors. 

The Risk Involved in an Investment in Property

An important factor in determining which investment suits your needs is the amount of risk you are willing to take. While some investors are extreme risk takers and like to put more of their investment towards something volatile such as cryptocurrency, others are more risk averse, and prefer to accept a lower return on investment with known risks as opposed to unknown risks. 

In comparison to other investment opportunities such as crypto and shares, investing in property is relatively safe. With this being said, it doesn’t mean that there is not the potential for you to lose your investment. When considering the 2020 pandemic in particular, risk surrounding property is somewhat higher than it would otherwise be. 

Volatility due to the pandemic has meant that Australian housing prices have dropped, open houses and auctions have been halted, and rent reductions have occurred. This might mean that you are tempted to invest, in anticipation of future price rises, however the pandemic also means that future price changes are uncertain.

Being Prepared to Pay it Off

One of the biggest considerations to make in deciding to buy a property as an investment is in terms of whether you are prepared to make the necessary repayments. These will likely take a significant chunk out of your regular income, while other investments do not require the same commitment. 

Rent money will obviously contribute to these repayments, however it won’t cover them entirely. Plus, in the event of a vacancy (which is likely to happen at some point), you’ll be covering these repayments entirely. 

If you are planning on putting down a deposit and making repayments on a property, you’ll want to know how much you will be paying on the mortgage – calculate it here.

Investing in a Property to Maintain Your Lifestyle 

In many situations, investing in a property is often an alternative to buying a first home. If this is the case, this decision will involve a lot of thought in itself. However, a significant factor that increases the appeal of investing in a property is that it can allow you to maintain your current lifestyle. 

Purchasing a property in an area you want to live in might be out of your financial means – if you want to live in a trendy area with parks, amenities, cafes, shops and entertainment, the cost of the property will be higher. Investing in a property can solve this problem as you can choose to invest in an area that is cheaper or more rural, and then continue to rent in the area you want to live in. 

Don’t Overlook Maintenance, Upkeep and Management Requirements

Another factor that makes buying an investment property an involved process is the maintenance and upkeep involved. 

This starts with the tenants – choosing the right tenants can be a difficult process, and one that is often ongoing. The right tenants need to take care of the home properly, be a positive contribution to the neighbourhood (you don’t want to be receiving complaints from neighbors), and make payments in a timely manner. Finding the perfect tenant is easier said than done, and depending on how long they plan on living in your property, you might be screening the next occupants sooner than you would like. 

Regardless of the tenants, there are going to be maintenance requirements. Even the perfect occupants will come into some sort of maintenance requirement, whether it is to do with plumbing, the kitchen, or the general structure and quality of the property. Having to determine whether this is the fault of the tenants or not is another problem in itself, but ultimately you may end up having to pay for these maintenance costs. 

Finally, you have to deal with the management of the property in general- this means taking the time to deal with the processes involved in finding tenants, performing upkeep, keeping neighbours happy, and more. On the other hand, you could enlist the help of a professional property manager – this is a more costly but convenient option, and will depend on your timetable, income and personal preference. 

If you do buy an investment property, be sure to get a depreciation schedule prepared.

Stamp Duty Changes for NSW?

AFTER MANY months of speculation, the New South Wales Government has revealed its plan to overhaul stamp duty in the state.

What is it all about?

The measure, announced as part of the 2020-21 NSW Budget handed down on Tuesday, will be open for public consultation until March so the community can have a say. Following that, the changes could potentially be implemented from mid next year.

Rather than completely scrapping stamp duty, the Government plans to make it optional for future transactions, so buyers in NSW can choose whether they want to pay a large upfront property tax or an alternative tax in the form of a smaller annual land tax when they buy a home. Land Tax Stamp Duty

The current stamp duty concessions for first homebuyers in the state would instead be provided via a $25,000 grant.

If buyers opt for the annual land tax, the proposed model provides that owner-occupiers would pay a lower rate than investors.

For those who already own a home and are not buying another, there will be no change.

Why make changes to stamp duty?

Stamp duty is the tax buyers pay when they purchase a property and is a huge upfront cost – for a median-priced property in Sydney of $860,955, stamp duty is $34,372.80, but it can also be much more.

By removing this large upfront cost for buyers, you remove a barrier for those looking to enter the market, as well as those looking to move – either by upgrading or downsizing.

That means, as NSW Treasurer Dominic Perrottet has said, that the removal of stamp duty could help many more people – ie. first homebuyers – to realise the great Australian dream of owning their own home sooner.

It will, however, also lead to a more efficient use of housing as it will incentivise people to move into appropriately-sized housing, close to schools and workplaces, rather than staying where they are.

It is also designed to assist in the post-COVID economic recovery, with projections it will inject more than $11 billion into the NSW economy in just the first four years and boost the NSW Gross State Product by 1.7% over the long term.

The proposed changes come as the state has recorded a $16 billion budget deficit, with predictions it will only get worse in coming years.

How significant are these proposed changes?

The proposal to overhaul stamp duty in NSW is a huge change to the property tax system, with the current model having been in place since Federation. The ACT is the only state or territory in Australia so far to have taken steps towards abolishing stamp duty.

Mr Perrottet has pointed out how archaic the tax is, being centuries old, and the importance of modernising the tax system.

Indeed, the abolition of stamp duty is something many prominent economists have been advocating for many years. There has been renewed vigour for the tax’s removal this year as we have faced the pandemic and it was mooted as a way to make major structural tax reforms to support Australia’s economic recovery.

In response to the announcement about stamp duty reform in NSW, Real Estate Institute of NSW CEO Tim McKibbin says it is a long overdue move.

“Stamp duty is an inefficient, inequitable tax that distorts market activity. Not only does it discourage people from moving, especially downsizers who would otherwise free up housing stock, it also limits the additional expenditure homebuyers could otherwise engage in,” he said.

“While there is no such thing as a good tax, some are better than others. When tax becomes a consideration of a transaction and not a consequence, it’s a very bad tax.

“People in NSW have elected not to pay stamp duty by not buying property. On this basis, we welcome the news that stamp duty will finally be phased out in NSW.”

Where to from here?

There will be more clarity – and of course commentary – on the proposed changes to stamp duty in NSW over the coming weeks, with certainty to come following the outcome of the public consultation, when the final tax model will be revealed.

While the REINSW supports stamp duty changes, it has also expressed its lack of support for the replacement of one property tax with another property tax. Stamp Duty Reform NSW

“The question should be asked why the property industry, which contributes so significantly to the state’s economy, must shoulder a disproportionate amount of the state’s tax burden,” says McKibbin.

“A land tax may be more broadly-based than stamp duty, but it still only applies to property. Investors in shares, for instance, pay no comparable tax.”

There is no doubt the proposed stamp duty changes will be hotly debated over the coming months. We will keep you informed on the latest news.

Are the responsible lending reforms good or bad?

IN A MOVE designed to strengthen the economic recovery from the COVID-induced recession in Australia, the Federal Government recently announced reforms to responsible lending laws.

By removing responsible lending obligations from the National Consumer Credit Protection Act 2009 (NCCP), with a few exceptions, the changes mark a move away from the ‘one size fits all’ approach to assessing loan applications, and will simplify the process.

With the onus transferring from the lender to the borrower to ensure they can afford a loan, it will essentially make it easier to get credit, which will lead to greater spending and stimulate the economy.

It’s also expected to boost demand for housing and therefore help to support house prices.

So are these reforms, expected to be implemented on April 1 next year, a good thing or a bad thing?

Who will the beneficiaries of the reforms be?

It’s intended that the economy will benefit from the reforms, which means we should all see some benefit.

But since the changes are designed to improve the accessibility of credit by removing overly stringent lending restrictions, it’s clear borrowers will be one of the main beneficiaries.

While some reforms and closer scrutiny of lenders was needed in the wake of the GFC back in 2009, Aussie Franchisee – Lane Cove Jon Somers JP says the pendulum has now swung too far the other way.

He says the lending reforms will lead to more reasonable lending criteria, with credit more accessible and loan approval times – which he’s seeing take from four hours up to around one month – hopefully reduced with less rigorous assessments required.

“At the moment I have so many clients that are strong candidates for finance but just can’t borrow what they need,” he says.

“Waiting times with some lenders are the longest that I’ve seen in 18 years of mortgage broking.”Mortgage Loan

But while it will make it easier to get credit, Somers adds it’s most unlikely anyone who is ineligible for credit will now be able to obtain it.

Steve Mickenbecker, Group Executive, Financial Services at Canstar.com.au says there is a strong case for lending reform to rebalance responsibility between the lender and borrower and to clear up uncertainty over the degree of scrutiny to be placed on loan applicants’ historical spending.

“The operation of credit in this environment and future development had become increasingly inhibited,” he says.

In addition to borrowers, lenders will benefit from the reforms with less onerous credit processes and less risk of liability, says Mickenbecker.

“The other beneficiaries are people who have been wrongly denied credit or have experienced delays as a result of compliance with the code and the presumptions made about credit.

“Some lenders, nervous about the onus of proof falling on them, will have set credit standards too conservatively.”

Mickenbecker says the reforms should eventually make credit more readily available, but the question mark will be lenders’ ability to gear up with a new credit process and their preparedness to take on expanded credit in a time of heightened risk.

Will borrowers be at greater risk now?

Somers doesn’t believe the reforms will add any risk to borrowing, with the onus now back on the borrower, because the banks will still be performing a thorough assessment.

It’s entirely fair that the onus be on the borrower, he adds.

“If you’ve done a thorough budget and allowed for contingencies, then there should be no issue.”

Mickenbecker says borrowers who struggle to assess their suitability for credit will be exposed to some risk without the protections of the current regime, but just because the onus has shifted from the lender to the borrower it doesn’t mean lenders are going to lend irresponsibly.

“Lenders have a strong interest in avoiding loans that may pose a risk,” he explains.

Borrowers have to be satisfied that they can afford a loan and if in doubt they should seek independent advice before putting forward a loan application, says Mickenbecker.

When it comes to approaching banks when the new laws kick in, it’s best to engage a professional or at least perform extensive research yourself, adds Somers.

“These changes (to lending reforms) will not impact a mortgage brokers’ ‘best interest duty’ obligations, so brokers must continue to ensure their recommendations are in your best interest.

“A good broker will spend time with their clients, educating them on the options available, as well as the merits and risks of each offering.”

Common Sense with Paul Clitheroe

With so many varying forecasts about the future direction of the property market, I thought I would ask Paul Clitheroe of Money Magazine fame for his view.

Here’s his response below:

Hi Tyron,

It is indeed an unusual time. Hope you and family are well.

My view is pretty common sense, in short form below:

Cheers

Paul Clitheroe
Continue reading

Will the Doomsayers be right….this time?

Could property fall by 40%?

AS during any crisis – and even in the absence of one – the doomsayers come out in the property market. And COVID-19 is no different.

Following the pandemic we’ve seen numerous predictions about Australian property prices, including that they could fall by up to 40%.

Will it come true? Only time will tell. But we do know that despite many price fall predictions, so far they have not come to fruition – and according to the experts they are unlikely to this time.

Have previous doomsayer predictions come true?

Two names come straight to mind when we talk about doomsayers and property prices – economists Harry Dent and Steve Keen.

In 2014 American Harry Dent predicted a 30% to 50% fall and in more recent years he has forecast that prices will halve in at least Sydney and Melbourne by 2023.

Steve Keen, from Australia, predicted a 40% fall within five years last year, and a similar drop after the GFC in the late 2000s.

Will the property Doomsayers be right THIS time?

In reality over the past 10 years Australian house prices have grown in value by more than 36%, with the median capital city house price rising from $463,673 at the end of 2010 to $633,745 as at the end of August this year, according to CoreLogic figures. Since 2014 the data shows prices have risen by 16%.

So what will happen to prices in the aftermath of COVID-19?

The general consensus is that Australian property prices will fall a little in the aftermath of COVID-19. But a 40% drop is highly unlikely.

CoreLogic’s latest figures show Australian housing values were down in August by just 0.4%, with the fall only around 2% since the recent high in April. 

           “I think there is just as much chance of property prices falling by 40 per cent as there is by them increasing by 40 per cent,” says Property Investment Professionals of Australia Chairman Peter Koulizos.

            “It’s more plausible that there will be some drops but they will be minimal. I think property prices will drop five to 10 per cent – it will  be closer to 10 per cent in Victoria and around five per cent for the rest of the country.”

As has happened in the past there will be some places where property prices increase and some in which falls will be felt the most.

Those to be hit hardest are likely to be near-new properties, due to government incentives to build brand new, as well as CBD apartments, with many rented by international students, says Koulizos.

             “A typical suburban home – a detached house on a decent-sized block reasonably close to amenities – will not see much impact at all.”

Personal investment columnist Pam Walkley says she’s unsure of where property prices will head from here because we are in “unchartered territory”.

In the short term, she says, downward pressure could be put on prices if there are a lot of foreclosures following mortgage freezes, and if overseas migration slows significantly – which it is likely to do – and lessens demand.

             “While I don’t see huge price falls in the short term I don’t really see any potential for huge rises either,” she says.

             “But long term if the recession – and maybe it becomes a depression – causes governments to find ways to cut their outlays, major changes to the way property is treated tax-wise may be the catalyst for very hefty rises.

              “Will we really be able to afford generous negative gearing breaks, family homes being CGT-free and not counting the family home in the assets test to access government pensions in our parlous state?”

Ultimately prices are very likely to rise again

Koulizos has undertaken research which shows Australia has proven to be very resilient in global economic crises, with prices rising in the five years after every time.

The research found that following the GFC in 2008-2009 capital city dwelling values increased by up to 39% in the five years after. Prices also increased by up to 100.7% after the recession of 1973 to 1975, 67.7% following the downturn of 1982 and 1983 and 47.3% following the ‘recession we had to have’ in 1990-91.

Eventually, prices will rise

Koulizos says in the case of the current health crisis, government and banks are offering an economic airbag, including record low interest rates and mortgage repayment holidays, to soften the impact financially, which is an added positive.

He points out that in the 1990s recession unemployment hit 11% and interest rates were 17.5%, while this time around we have unemployment forecast to hit a high of 10% and 3.5% interest rate, which is going to “save property prices” in Australia.

He adds that the Australian property market is heavily dominated by owner-occupiers rather than investors, and selling their own home is the absolute last resort.

At the moment he says buyer demand is low but so is supply which means prices are largely holding up.

Paul Clitheroe, financial adviser and editor/founder of Money, acknowledges that interest rates will be low for a long time, but he adds that income growth for the vast majority of the working population will also be low.

                     “Add JobSeeker winding back, COVID in all probability being with us for longer than we hope, banks wanting to get repayments on loans sooner than later…. you would not need to be Albert Einstein to figure downward pressure on prices,” he says.

                       Right now the market is generally holding due to huge government support, very low interest rates, banks deferring loan repayment and things such as the ability to access $10,000 from Super… not to mention a majority are in front with mortgage repayments”, he says.

                       “But jobs will disappear and may take a long time to come back, government support will reduce and in many cases people’s reserves will dry up.

                        While forced supply will put downward pressure on prices, Clitheroe says with time buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.

                        Despite the COVID-19 crisis restricting immigration and the trend towards youngsters delaying having a family, Australia’s population still grows, he says, with the average prediction for population of around 35 million in a bit over 30 years. This means demand for housing will grow going forward.”

Paul Clitheroe’s 5 top tips for navigating the current property market:

    1. Don’t hurry; forced supply is likely to increase putting downward pressure on prices.
    2. With time, buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
    3. Be realistic about the level of personal debt and your own job security. Being forced out of your property by a job loss could be ugly in this climate.
    4. Buy where a growing population puts pressure on prices. Buy near public transport, schools, hospitals, parks and a decent cup of coffee.
    5. Do not believe anything an agent tells you. They are not your friend, they work for the seller only. Do your own research.

The future of office buildings…

Is the office as we know it dead?

MUCH has been said about the future of workplaces since COVID-19 forced some major changes to office life as we know it,  kicking flexible work practices into gear.

At this stage, no one really knows how offices will look in the future as uncertainty still abounds, but we do know that workplaces will undergo (potentially lasting) change.

Health and safety will be a huge factor, with social distancing requirements and even temperature testing being introduced in some buildings, but flexible working arrangements will also determine how future offices will look.

I look into my crystal ball at the end of this blog

COVID-19 Handshake

How will workplaces change?

COVID-19 has necessitated the most transformational shift for work in perhaps a century, says McCrindle Communications Director Ashley Fell, who just released a new book about this topic in conjunction with Mark McCrindle called Work Wellbeing: Leading thriving teams in rapidly changing times.

“The most notable was when almost overnight the office-bound workforce globally relocated to their homes,” she says.

“The digital transformation of our organisations was achieved not through management strategy or a new technology solution, by the realities of this virus.

“For the first time in modern history working from home became the norm and even ushered in the three-letter acronym to describe it: WFH. And it is here to stay.”

In the future it is likely we will see our office spaces change to accommodate more flexible working styles and less people in them all the time, says Fell, with most workers in this knowledge economy having more of a regular opportunity to work a day or two from home.

“Our national survey amid the COVID-19 crisis showed that 69% said they were as, if not more, productive when working from home than they were at their office.

“It also showed that far from being a temporary response to a global pandemic, 78% said that working from home will become the new normal.”

Workplaces will also change to become COVID-safe, enabling social distancing and safety and health measures.

Property Council Chief Executive Ken Morrison says the Property Council has worked closely with Safe Work Australia on guidelines for office buildings, including how to manage lifts, common areas of buildings and change room facilities for cyclists and people running or walking to work.

“There is now comprehensive advice available to help building managers and businesses to make their workplaces COVID-safe. Our members have been proactively addressing these issues to provide a COVID-safe environment for their tenants and their workers.

“As people are able to return to their offices, we believe they will do so in increasing numbers depending on their local public health restrictions.”

Offices are here to stay

With more people working from home it is likely we will see less demand for full utilisation of office spaces that has been the norm over the last few decades, says Fell. But that doesn’t mean offices will be gone entirely.

“The office will still be important in the future, but likely for collaboration, creativity and social interaction – the parts of work that are harder to achieve when workers work remotely.”

While there are some who say COVID-19 is the death of the CBD or the office building, says Morrison, and we may see some tenants provide more of their people with flexible working arrangements, at the same time they may also need more space in their offices to accommodate physical distancing.

“There may be some changes to the way we configure our offices, but they will still be a very important part of our working lives.”

While Australians have shown great versatility in making the shift to working from home, many are keen to get back to their workplace and reconnect with their work colleagues in person, adds Morrison.

According to an ABS survey recently, 86% of working Australians were somewhat comfortable in resuming attendance at their usual workplace, he says.

“There are lots of positive benefits to working in an office including the opportunities they present for critical ingredients for business success, including collaboration, creativity, innovation, learning, mentoring and developing and sustaining team culture.

“Many businesses have been able to manage remote working so well because of the close internal and external networks that their people developed in the pre-pandemic. Businesses have been surfing off the previous benefits of working in offices.

“It’s also a practical issue – not everyone can do their jobs as safely or efficiently from home, so we need to make sure that our CBDs and offices are open and working again to support those businesses which need a physical premises for their staff.”

LJ Hooker Commercial Managing Director Mathew Tiller says while there will be some businesses that see COVID-19 workplaces changes as a way to reduce costs and move some work online, many businesses will be unable to reduce their office space as they will need to ensure social distancing requirements are maintained.

He says those in the former category are also unlikely to do away with the office entirely.

“They will still need a central point to meet; a place where employees can catch up and engage with others.

“Working from home is great in terms of not having to commute to the office, but human interaction is also still very important for culture of work and mental health of employees. It also cultivates ideas and strategy.

“There will always be a need for office space; it will just be used differently and for different purposes.”

Tiller says the location of offices may also change, with many businesses likely to consider moving from the CBD to a suburban office closer to where employees live.

What do I see when I look into my crystal ball?

From an Investor Viewpoint:

In my view office buildings will become more spread out over time. We may find more suburban co-work spaces in the future. People will still want to physically interact, albeit less often.

I can see some CBD Offices being converted to residential over time.

I can’t see too many new office buildings being given the green light in the future.

Smaller office spaces may become more in demand as companies downsize to reflect the new working from home reality.

If you don’t own an office and are thinking of having a small hub where workers can get together and share space, now might be a good time to start looking.

From a Tenant Perspective:

If you are a tenant with a lease that’s about to expire, now could be a good time to negotiate.

You may have a clause that allows you to “re-set” the rent based upon an independent market valuation, rather than an automatic increase or linked to CPI.

I expect to see a lot of sub-leasing space coming onto the market over time.

As a rule of thumb, businesses require roughly between 8 and 12 square metres of gross space per employee. With more employees working from home, companies could in effect get two employees in that space on a co-sharing basis, thus reducing the need for office space in the future.

Whether you’re an investor of office space, or a tenant, you can get a depreciation schedule quote with our quantity surveyors

The HomeBuilder Grant

Is the new HomeBuilder grant scheme enough?

IN THE AFTERMATH of COVID-19, things are changing all the time, including restrictions and the impact these are having on a range of industries, including property.
So far the property market seems to be holding up pretty well, with minimal falls in values. But it’s a different story for the construction industry (a huge source of employment for Australians), which faces a steep drop in home building after September this year.
In light of this the Federal Government recently announced a new $25,000 property grant called HomeBuilder, to be handed out to eligible people building or renovating a home, which is designed to boost construction activity and stimulate the industry.
This $688 million housing stimulus package aims to build 30,000 homes by Christmas and is predicted to generate over $15 million in national economic activity, lead to $10 million in building projects and support more than 1 million jobs.
Details of HomeBuilder are still evolving, and there may be other assistance on offer in the months to come (particularly from state and territory governments) to stimulate the housing market – we’ll have to watch this space.
In the meantime, however, here is what we know about what’s currently on offer.

What is HomeBuilder?

The scheme offers a $25,000 grant to owner-occupiers substantially renovating their home or building a new home between June 4 and December 31 this year.
It comes with restrictions though – for new builds the home cannot be priced at more than $750,000 and renovations must cost at least $150,000 and up to $750,000 for a home valued at $1.5 million or less, but the work excludes sheds, pools, tennis courts, granny flats or any other structure detached from the dwelling.
The grant is also means tested, with income caps of $125,000 for singles and $200,000 for couples.
Contracts must be signed within the next six months and construction must start within three months of the contact date.
The program is expected to be up and running within a few weeks, with applications able to be backdated to June 4 so contracts can be entered into right away.
It will be implemented via a National Partnership Agreement with the federal, state and territory governments.
At the time of writing applications for the grants were not yet open, but Australians could register interest in the scheme through the Government’s official website.
The $25,000 HomeBuilder grant is designed to complement state and territory housing assistance programs, including grants and stamp duty discounts, to encourage more people to undertake building work.
Since the Federal HomeBuilder announcement, some states have offered further stimulus, with Tasmania offering $20,000 for any owner-occupier to build a house, while Western Australia is offering owner-occupiers and investors a $20,000 grant.

What are the pros and cons of the HomeBuilder grant?

Some argue the money offered by HomeBuilder would be more effective in achieving its aims of stimulating construction if it was given for the provision of social housing instead.
While the HomeBuilder grant will encourage more people to undertake a building project – either through a renovation or new build – which will stimulate the construction sector, inevitably it will also be given to those who were already planning a project anyway, which is one of the program’s criticisms.
Other criticisms are that it’s too restrictive due to factors such as the large outlay required (particularly for renovations), property value caps, means testing and timeframes – particularly to get approvals and plans – which may lead to a low take up.
It could also inflate prices for houses or trades, as grants often do, but the short timeframe for the scheme is expected to counteract this.
Despite all these potential drawbacks it has been reported that there has been huge enquiry – numbering 8000 as at June 8- about the program in the days following the announcement. This indicates interest – and potential take up – is high, and the program could be the catalyst for people taking action after sitting on the sidelines due to Coronavirus.
In particular it could be a great incentive for first home buyers, who will also be able to take advantage of state and territory grants, but it’s also a good opportunity for existing homeowners to upgrade to a new homes or update their current home.

What to consider

You should do you own research and seek expert advice before rushing in to take advantage of this grant, despite time being of the essence.
Ensure you are making a prudent investment decision and either buying a new home that will increase in value or ensuring you are adding value through a renovation and not overcapitalising.
Chris Gray of YourEmpire.com.au says in the past property grants have often created a short-term bubble in the market, and quite often it can be a “false economy”.
Home buyers, he says, are often better off buying a mainstream existing house in a well-located suburb with no grant rather than buying a new one with a grant, as the underlying investment in the most important thing.
He warned homebuyers taking advantage of HomeBuilder to do their numbers, and determine if they would actually still do a renovation and spend the money if they didn’t have the grant.
“The grant should be the bonus rather than the reason for doing it,” he says, adding that having to spend the extra $25,000 on a higher-value renovation means overcapitalising is a real risk.
“You might spend money on things that actually devalue the property such as gold-plated taps or diamond encrusted something else. You can spend money upscaling to satisfy the requirements of the grant and it doesn’t suit the area or the type of property.
“Get a fresh pair of eyes to look over your property and determine what it is worth now and what it will be worth after so you make sure you add value and know how much to spend on a renovation.”

Do we need more property grants to stimulate the housing market post COVID-19?

At this present time, it doesn’t appear that the housing market needs propping up via other grants or handouts.
According to CoreLogic Head of Research Tim Lawless property values have been quite insulated from a downturn to date, with CoreLogic data to the end of May showing home values were down less than half a percent.
The HomeBuilder grant is more about jobs than housing, he says.
“(It) is more about shoring up jobs in the residential construction sector, so it is rightly targeted towards incentives to build or renovate, rather than stoke demand for established homes which could have an inflationary effect on prices.”
Mr Lawless explained that housing construction has been in a broad downturn over the past year and a half, and will likely slump further through the year.
“Nationally dwelling commencements peaked in the first quarter of 2018 and by the end of last year had declined by around one third to be 14 per cent below the decade average,” he says.
“Considering housing construction typically provides a strong multiplier effect on the economy via the scope of the supply chain and array of trades and industries involved, a stimulus package for the sector makes sense.”

Depreciation Schedules – The New Reality

The COVID-19 pandemic has forced many businesses to reflect on “industry norms” and the way they operate. We are no exception.

At Washington Brown we believe in researching each property and advising clients on the best way to approach achieving the maximum depreciation in the most cost-effective way.

Not EVERY property needs to be inspected in order for the maximum claim to be achieved.

This USED to be the case – but the tax legislation recently changed and property investors can no longer claim depreciation on items like ovens or dishwashers that are not brand new.

So NOW you can only claim depreciation on the structure of the building like concrete and bricks for 2nd hand properties.

If you BUY brand new items like carpet and blinds, you can still claim depreciation but it must be based upon the purchase price (not an estimate).

In the OLD days, we used to visit the property so we can value these items individually, the ATO put a stop to that.

Our Commitment to Property Investors Moving Forward

If we determine that an inspection is NOT required to ensure the maximum depreciation claim – this will reduce our fee AND you’ll receive the report sooner. Let Washington Brown work out the best depreciation plan for your property here.

Here are 5 reasons why SOME properties do not require an inspection:

  1. Extensive Database – In 40 years we have amassed an extensive database of construction costs for the majority of residential and commercial buildings around Australia.
  2. We have the costs – We are familiar with your building and as such, we already have the construction costs on file.
  3. Plant & Equipment no more – You have purchased a second-hand property so you cannot claim on the existing plant and equipment components.
  4. Online data – There is an abundance of detailed information and pictures of your specific property available online (both publicly and via subscription-based industry databases).
  5. You have the costs – Your property is a brand new build and you have access to the construction cost, plans and inclusions list.

Here are 5 reasons why SOME properties STILL NEED an inspection:

  1. Your property is unique – Your property is classed as High Spec/Luxury/Non-Standard and therefore not typical. An inspection will ensure the maximum deductions by ensuing all facets of your property are assessed and included.
  2. Non-residential – This means you can still claim the full benefits of depreciation including the Plant & Equipment (carpets, blinds, etc.)
  3. Renovated – Your property has been substantially renovated. There is insufficient information online and as such an inspection is necessary to maximise the depreciation.
  4. More information required  – We do not have access to sufficient information specific to your property. We, therefore, need to acquire this via an onsite assessment.
  5. Plant & Equipment – Your property qualifies to claim Plant & Equipment deductions, an inspection ensures no assets are missed, which means your deductions are maximised.

The Australian Institute of Quantity Surveyors CEO, Grant Warner,  has confirmed the following in writing to Washington Brown:

I would like to confirm that AIQS (or the legal advice we sought) makes no representations about:

Grant Worner, CEO, The Australian Institute of Quantity Surveyors.

Let Washington Brown work out the best depreciation plan for your property by getting a quote here. Or work out much you can save by using our free Property Depreciation Calculator.

Real Estate During The Pandemic: Is It All Doom & Gloom?

Having caught up recently to co-present on a Depreciation-centric webinar in the lead up to the End of Financial year, Peter Foldes from Washington Brown was able to chat to leading property analytics researcher Terry Ryder (Owner and Creator of Hotspotting) regarding the effect of the COVID-19 Pandemic on Real Estate around Australia.

Terry, mainstream media seem to be touting that there will be a significant “hit to the Australian Property Market.” It paints a pretty gloomy picture; Do you think we’re going to see a “crash?”

The Australian real estate market is continuing to defy doomsday predictions of price drops as a result of the COVID-19 pandemic.

Prices are continuing to grow and the number of people searching for properties online is higher than it was at the same time last year, according to Terry Ryder, founder of Hotspotting.

All the data that is coming in actually defies the doomsday notions we’re seeing in news media,

Certain sections of the media in particular have been talking down real estate – and we’ve had dire predictions over the past two months about prices falling – but we just haven’t seen it in terms of the actual price data.

Figures from the nation’s largest property sales platform, realestate.com.au, are showing increases of up to 40% (compared to the same time last year) in the number of searches of properties for sale. People are certainly out there looking, at a time when the number of properties listed for sale has fallen significantly, and that might explain why the data on prices for March and for April was so strong, with six of the eight capital cities recording some price increase in April, as well as six of the seven regional market jurisdictions.

We often hear commentary on the “Australian Property Market,” implying that it behaves as a single commodity. Do you feel that some areas may actually continue to see growth throughout the pandemic period?

The nature of the local economy was pivotal in terms of which markets will continue to do well, which ones will stagnate and which ones might experience price drops.

Those markets which have and may continue to experience price drops are ones where the economy is heavily reliant on tourism, particularly international tourism.

My expectation is that the Gold Coast market will be one of the ones to drop, certainly in the short term

In contrast, strong regional cities with more diverse economies such as Ballarat, Bendigo, Orange, Albury-Wodonga, Mackay and the Sunshine Coast should continue to perform well. These are all cities where the local economy and employment are strong in industry sectors that are doing well despite the virus-impacted climate.

For example, the biggest sectors in Albury-Wodonga in terms of Number of Jobs are supermarkets & food stores, hospitals & medical services, the military and aged care.

Another example is the Sunshine Coast: One of the major factors which appealed to investors are the numerous large-scale infrastructure projects – and work on these has not stopped during the COVID-19 shutdown. Current infrastructure projects on the Sunshine Coast total more than $20 billion.

The ticks are in the ‘pro’ column of why you would be looking at a region like that for investment!

In your opinion, is now a good time to be considering a property purchase?

It is important for investors thinking of entering the market at this time to not get swept up in the doom and gloom expressed by “news media” and to keep a balanced view of what was happening. There are opportunities to be found in the current market.

I think it is a very good time to be looking because there will be opportunities to buy well.

Generally speaking, real estate is holding up quite well but there will be exceptions.

If you are out there as a buyer right now you are not going to be competing with as many investors as you might have done in normal times. You can perhaps negotiate from a position of increased strength.

I think it is a very good time to buy, as long as you select a location that has the underlying fundamentals to provide good growth.

Stamp Duty or Land Tax?

Should stamp duty be abolished?

THE POTENTIAL abolition of stamp duty in Australia has been proposed and discussed for at least a decade, but recently there have been fresh calls from many corners to do away with the property tax.

Economists in particular – starting with Ken Henry way back when he authored and delivered his Henry Tax Review in 2009 – have been pushing for stamp duty to be abolished, arguing that now is an opportune time to make major structural tax reforms to support the economic recovery post COVID-19.

If abolished, the most common suggestion is that stamp duty would likely be replaced by a broad-based land tax on real estate owners to be paid annually and/or an increase in the GST, although the Federal Government has indicated it is opposed to the latter.

Why should stamp duty be abolished?

Inefficient, bad, lazy, archaic… these are just some of the words used to describe stamp duty. Dr Henry has called it a ‘diabolical tax’ and labelled it one of the worst taxes in Australia.

The fact is that stamp duty was established in the early 19th century, when documents for the transfer of a home needed to be officially stamped to make them legally binding, and governments took the opportunity to ensure people paid taxes at the time.

But while this worked in the olden days, it’s not relevant now with our systems far more sophisticated.

There has also been no indexing over time, despite prices rising significantly over recent decades, which has resulted in huge stamp duty hikes and of course government revenue.

How much does stamp duty raise?

Domain figures show stamp duty on a median-priced home in New South Wales grew by 102% between 2004 and 2019 to reach $42,269, 183% in Melbourne to hit $44,164, and 189% in Brisbane to reach $11,013.

Governments like stamp duty because it can provide strong revenue to state and territory budgets, but the downside is that this revenue can be volatile, reliant on a strong property market and consistent transaction levels. Stamp Duty

If transaction levels fall due to an economic downturn or a dive in confidence, so too does stamp duty revenue for governments, which can leave big holes in budgets from year to year.

For example, stamp duty revenue in NSW was $9.7 billion in 2016-17, but fell 24% in 2018-19 to $7.4 billion.

Could a broad-based land tax be an option?

In contrast, taxing land through a broad-based land tax, charged annually by sending a bill to everyone who owns land (a proportion if an apartment), would provide a much more consistent source of revenue over time.

Property Investment Professionals of Australia Chairman Peter Koulizos says an annual land tax would be better for state and territory governments by providing more regular income.

“The problem for state government is when the property market is booming so are their coffers – and generally revenue from property is the second highest income-earner after payroll tax – but in situations like COVID-19 revenues dive,

Getting a regular land tax from all property owners is going to be much better for them to budget.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

The other major issue with stamp duty is that because it’s a massive impost on a single transaction – it could be $40,000 or $50,000 on top of a property purchase, particularly in Sydney, for example – it impacts economic decision making, often in a detrimental way, with people less inclined to buy or transact.

In particular, it can act as a barrier or deterrent to home buyers, particularly first homebuyers, who have to save both a deposit and then more for stamp duty, or add it to their mortgage, which will cost them more over time.

But it also leads to an inefficient use of housing as people become more reluctant or are unable to move – including to upsize or downsize – as they have to pay the huge cost of stamp duty each time, which makes it too expensive.

Land Tax Stamp Duty

This results in people living far from work opportunities or their children’s schools, or people living in homes far too big for them as they shy away from downsizing, which also prevents that larger housing being freed up for families that need it.

“Abolishing stamp duty might encourage more home ownership, which is a good thing,

When you have to come up with a 5% deposit plus 5% stamp duty, in theory it takes twice as long to come up with, so it’s a barrier to home ownership.

For prospective home owners it’s going to be a benefit because it’s less initial money that they have to come up with.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

How would the abolition of stamp duty work?

New South Wales and Victoria are currently talking about doing away with stamp duty, while the Australian Capital Territory has been the only state or territory in Australia to actually do so, starting the process back in 2012.

The ACT is phasing stamp duty out under a 20-year plan, gradually reducing stamp duty rates and replacing it with higher annual rates or a land tax-style property rate.

While this can lead to a situation where people are paying both stamp duty on a purchase and an annual property tax over time (ie. being double taxed), thereby also ensuring the government’s revenue remains fairly stable, it’s not the only way to do it.

The other way is to abolish stamp duty straight away, and apply a land tax to purchases from a certain date, exempting people who already own a house and have paid stamp duty. This, however, could leave a hole in state or territory budgets for some time.

What are the potential disadvantages of abolishing stamp duty?

This issue of how stamp duty would be abolished and what is would be replaced with is the major potential downside, with the devil in the detail of how the plan would work.

One concern is that these annual land tax bills would have to be very sizeable to replace stamp duty, with one Deloitte Access Economics model estimating the average property would have to pay $2400 per year, but of course many properties valued at higher rates could pay up to five times as much.

And who would stop governments from upping these rates regularly, so that people end up paying much more over time?

According to the Property Council, the ACT’s approach was supposed to be revenue neutral for the government but in actual fact the revenues from property taxes are now higher.

A HIA report from the start of 2018 found the switch from stamp duty to land tax in the ACT has resulted in additional property taxes of $196.5 million, an increase of 38% over four years.

Koulizos hasn’t made up his mind about whether abolishing stamp duty is the right way to go, but isn’t a big fan of another annual financial impost on home buyers or owners, on top of council rates, insurances and water bills.

“I’m particularly concerned for people on fixed incomes or pensioners – once you get to 65 or 70 it’s another impost you have to keep paying until the day you die.”

Peter Koulizos Chairman, Property Investment Professionals of Australia

There are suggestions land tax bills for older people could be paid upon the sale of the property upon their death, but the bill of course still has to be paid.

So, will it happen?

While there is a lot of talk about the abolishment of stamp duty, whether or not it will actually happen remains to be seen.

Governments are very dependent on the huge revenue generated from stamp duty, so moving away from that will prove to be difficult.

Personally, I feel we should try our utmost to move away from this lazy tax that limits a workforce from moving to where the jobs are.

But it’s going to be very tricky politically to convince voters that replacing stamp duty with an annual charge on land is a good idea.

Let’s watch this space!