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.
“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 willbe 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:
Don’t hurry; forced supply is likely to increase putting downward pressure on prices.
With time, buyers can be quite confident that a growing population and eventual recovery will see property continue to be a solid investment.
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.
Buy where a growing population puts pressure on prices. Buy near public transport, schools, hospitals, parks and a decent cup of coffee.
Do not believe anything an agent tells you. They are not your friend, they work for the seller only. Do your own research.
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.”
THE FEDERAL Government has made a very significant change to capital gains tax (CGT) affecting ex pats, but it’s likely there are many Australians living overseas who are still completely in the dark about it.
Put simply, the change entails the CGT exemption for the Australian family home, which has been in existence for 35 years, being taken away from expat – or non-resident – Australians if they sell the property while living overseas.
Currently the exemption applies so long as the home was rented out for no more than six years at a time, but from July 1 this year the new changes will take effect.
What are the changes?
The change to CGT means expats seeking a principal place of residence exemption must sell before June 30 or hold the property and wait until they return home to live in it again before selling. If they don’t, they risk paying a potentially hefty CGT bill on their home.
If the property was purchased before May 9, 2017 expats can sell before June 30 this year and avoid CGT, but if the property was purchased after May 9, 2017 and sold while living overseas CGT will still have to be paid, as there is no principal residence exemption.
The legislation, which seems to have been rushed through after both political parties previously promised they would exclude expats from the changes as it was unfair, will also apply retrospectively.
That means capital gains will be taxed for the entire time the property has been owned, rather than just for the time the occupant has lived overseas, which could become very expensive for those that bought their properties as far back as 1985, with property prices having risen very significantly.
The changes to CGT will also affect migrants who buy a home in Australia to live in while they are here, and then sell after returning home.
What impact will the change to CGT have on expats?
The change will only affect expats who sell a home in Australia they have previously lived in while they are living overseas.
It’s difficult to determine exactly how many expats will be impacted, but it could be tens of thousands to hundreds of thousands.
And then there is not only current expats to consider, but those moving overseas in the years to come, particularly in an increasingly global economy where many people are going abroad to work.
Those that are affected will be significantly disadvantaged. Experts agree it’s an unfair tax to drop on Australians who have purchased in good faith, believing their home would be exempt from CGT, and continued to contribute to the Australian economy through taxes on their homes if they are rented out.
It should be noted that there are some concessions for the application of CGT to the homes of expats selling while overseas, with an exemption applying for life events such as a terminal medical condition, death or divorce.
What should expats do?
It appears this change to CGT has been brought in without much fanfare to even alert expats of its existence.
There will likely be many people caught unawares and potentially sell while overseas without realising the tax laws have changed, incurring a significant CGT bill.
If you’re an expat, the first thing you need to do is get educated on the change in the CGT rules, and then determine the best course of action for your circumstances.
You’ll need to do so quickly, with the deadline to sell (the contract date) being June 30 this year.
It’s a good idea to seek professional advice on the costs involved in your circumstances and whether you’re better off holding or selling.
Impediments to waiting until you return home include that your move may be permanent, you may be unable to hold the property financially, or you may be returning to a different city than the one which you left.
For those returning, you must be genuinely returning to Australia and can prove that you have quit your overseas job, cancelled a property lease and taken your children out of their overseas school, for example.
For those who do have to pay CGT, there could be issues in determining the correct tax liability because those who have purchased up to 35 years ago may not have kept proper records.
Capital gain is calculated using the original cost base, which includes expenses related to the property purchase such as buying costs, holding costs and renovations, as well as the cost of the property itself.
This may lead to expats selling their home while overseas being charged more CGT than they would have, if the proper records had been retained.
WHAT A rollercoaster the past year has been for property!
We saw a lacklustre start to 2019 largely due to apprehension around last year’s Federal Election and particularly proposed housing-related tax policies from the ALP.
Activity was also subdued due to the fallout from the Banking Royal Commission and tightened lending restrictions imposed by the Australian Prudential Regulation Authority.
However following the Federal Election in May and confirmation the status quo would continue the market slowly started improving as confidence returned, and now it’s firmly in recovery mode.
The difference between the start of 2020 and the same time one year ago is like “chalk and cheese”, says Hotspotting.com.au founder Terry Ryder.
“One year ago everything was super negative but now things are much more positive,” he states.
But just how positive is the market? Will the price growth that started in 2019 continue this year, and if so, will it be at a strong pace?
Let’s first look at why prices have started to rise again…
In the wake of the uncertainty in the property market over 2019 many sellers decided to hang onto their homes, fearing they wouldn’t get the desired price, and construction also eased.
This led to a lack of available stock for buyers to choose from, which Ryder says was one of the several factors contributing to the price growth that started towards the end of the year and has continued into this year.
“One of the factors in the escalation of prices, particularly in bigger cities, was that at a time when demand recovered quite strongly, there was very little supply and vacancies were generally low in most locations around Australia,”
“There was a lot of competition for good properties available, which was a big factor in price growth last year.”
Now, in 2020, there are signs supply is starting to rise, with sellers more confident in testing the market, and more construction in the pipeline, so price inflation that occurred due to a lack of stock will likely be tempered moving forward.
National residential property listings increased in January by 2.2%, according to the latest data from SQM Research. All capital cities saw a rise in listings, but the largest rise was in Sydney of 5.1%, followed by Hobart at 4.9%.
Sydney’s listings are still 24.8% lower than 12 months ago, while nationally listings are 10% lower than a year ago. But there are likely to be further increases in the coming months.
Dwelling approvals are also improving, with annual growth lifting to 2.7%, the first positive since June 2018.
“Markets are rising and people can get pretty good prices for their properties if they’re willing to list them,” says Ryder.
“Consumers were a bit battered and bruised after a period of negativity, including fears of the Federal Election, but since the middle of May last year there have been a series of fortunate events.”
These events include an easing of lending restrictions, tax cuts, three interest rate reductions and more positive media coverage on the market.
“There are always multiple factors in why the market rises and these factors are all part of the equation,” says Ryder.
“But with more supply coming to the market this year, it will take some pressure off prices, particularly in Sydney and Melbourne.
“The market will settle down a bit and be what you might call a ‘normal’ market.”
Indeed, the latest CoreLogic Home Value Index found that while property prices rose across every capital city in January, the rate of growth had slowed in recent months.
Over the past year prices have grown by 4.1%, which is the fastest pace of growth for a 12-month period since December 2017, but in January the index was up by a total of 0.9%, down from its recent monthly peak of 1.7% in November.
Growth markets are aplenty this year
With Sydney and Melbourne likely to take a backseat this year, smaller capital cities are set to come to the fore, including Brisbane, Perth, Canberra and Adelaide.
“Sydney and Melbourne have had substantial and lengthy booms, and the increase in supply and the affordability factor will tend to suppress the level of growth in those cities,” says Ryder.
“Cities that haven’t had a big run but have the right dynamics in play will have a strong year.”
Brisbane is overdue for growth, and all the ducks are starting to fall into line for the city to do much better this year, explains Ryder.
“All indicators are that Perth has finally moved into a recovery after five years of gradual decline and Canberra looks solid, underpinned by one of the steadiest economies in the country.
“Adelaide is always underrated; it’s got a lot more going for it than people realise and it will have a good year as well.”
Hobart has had a good run and is likely past its peak, and Darwin is still struggling, adds Ryder.
He points out that regional areas also have the potential for growth this year, with the strongest market being regional Victoria, with parts of regional New South Wales also looking promising, including Orange, Wagga Wagga, Goulburn and Dalby.
In regional Queensland the Sunshine Coast offers some of the best growth potential, with a strong economy, while some parts of Central Queensland are also recovering, including Mackay.
If you’re looking to invest in real estate, commercial properties present plenty of opportunities. However, you need to consider the risks and market drivers. This commercial property investment guide will help you.
You must think about more than the property investment basics when investing in commercial real estate. There are many complex market issues at work, which means you take on more risk.
Understanding these issues will play a role in the success of your investment in real estate. Commercial properties come in all shapes and sizes, which you must account for. This commercial property guide will equip you with the tools you need to succeed.
The Market Drivers
Several drivers affect the state of the commercial real estate market. You must understand what these drivers are before you can invest successfully. They include the following:
The strength of the economy. A weak economy means there are fewer businesses available to lease your property. Keep an eye on the data. For example, transport sector growth indicates that an economy is getting stronger.
Infrastructural improvements influence businesses’ decisions. For example, the building of new roads usually results in an influx of companies to an area. Buy your commercial property with future developments in mind.
The Reserve Bank of Australia’s (RBA) interest rates have an effect. If interest rates are on the rise, you’ll find less success with your commercial property. The cost of money increases. This places your potential tenants under greater financial strain. Conversely, low interest rates lead to more demand.
Population growth in certain regions will affect your decisions in real estate. Commercial properties do well in areas with large populations. This is because the demand for services increases, which leads to an influx of businesses into the area.
You should also consider population demographics. For example, areas with a lot of retirees will have more need for medical services. However, areas with lots of children need more family-oriented services. Use population demographics to find out about the types of businesses that will express an interest in your property.
There are also several risk factors to consider when you invest in commercial property. Here are some of the most important:
Commercial properties tend to stand vacant for longer than residential properties. You will have to handle the costs of the property during such periods. As a result, it’s usually best to tie commercial tenants to long-term leases.
New property construction always presents a risk to your investment. Your tenants may decide to explore their options, which could lead to vacancies. It’s the issue of supply and demand. The more supply, the harder it is to find tenants. You also won’t be able to charge your tenants as much when there are other options available.
Size is an issue. Large commercial plots cost a lot more to maintain, and are only suitable for certain types of business. Smaller plots may be cheaper, but they also have their limits. You must consider the local demand for services before deciding on the size of your commercial investment.
Infrastructural improvements in other areas represent risks for your established commercial properties. Your tenants may make the move to the new area, which means you lose out. As a general rule, try to invest in properties that are close to central business districts (CBDs).
A poorly-constructed lease could lead to the failure of your commercial investment. These are the factors to consider when creating your leases:
Commercial leases can extend from three years up to 10. The longer the lease, the less risk of vacancy. However, a bad tenant on a long-term lease could cost you. Offer the option to renew if you’re confident in the tenant’s ability to make on-time payments.
Link your rent increases to the Consumer Price Index (CPI).
You may require council approval for some types of business. For example, chemical treatment plants need to have the correct documentation.
Insert a condition that compels the tenants to revert the property to its original condition upon leaving. This will make it easier for you to rent the property out again when you current tenant departs.
What Else Should You Consider?
Further to this, you need to arrange proper financing for your purchase. Many residential lenders can’t help you with commercial properties. As a result, you may have to locate a specialty lender. Furthermore, you may not be able to borrow more than 70% of the property’s value.
You’ll also deal with a commercial agent, rather than a real estate agent. These professionals specialise in attracting the right businesses to your property. They’ll also help you to create attractive deals for potential tenants.
The Final Word
As you can see, commercial investment is a complex subject. This commercial property guide will equip you with the tools you need to succeed.
The team at Washington Brown can also help you to claim depreciation on your commercial property. Contact us today to speak to a Quantity Surveyor.
Cashflow can become a major problem with yourproperty investment. For beginners, slow cashflow could prevent you from building your portfolio as quickly as you’d like. Happily, there are some tricks you can use to make improvements to your investment property cashflow.
So, you’ve got what you think is a great investment property. You’ve followed all theproperty investment basics, but your cashflow is tighter than you expected. At times, it can be a real struggle to pull together the money to pay for the property’s expenses.
This is a common problem, no matter how well you’ve followedinvestment property tips. Beginners, in particular, tend to struggle with getting their cashflow up to the level they’d hoped for.
All is not lost. There are a few tips you can follow to improve your investment property cashflow.
Tip #1 – Raise the Rent
It may seem like a simple tip, but it’s one that many beginners don’t think about when they’re dealing with cashflow issues. Raising the rent on your property can offer a short-term solution while you look at the bigger problems.
Of course, you can’t do this every time you face a cashflow issue. Constant rent increases will drive your tenants away. However, it becomes an option if you haven’t re-examined your rents for some time. In such cases, you may be charging less than other investors in the area.
You must also remember your tenancy agreement, along with the laws of your state. Either may prevent you from raising your rents. That’s why many investors wait until the end of a tenant’s lease period before increasing the rent. With some luck, you can secure the tenant on a longer fixed lease at the new rate.
Tip #2 – Take a Look at Your Home Loan
Do you still have the same home loan you applied for when you bought yourinvestment property? Australia has dozens of lenders who offer hundreds of mortgage products between them. Take advantage of that fact to secure a better home loan.
Work with a mortgage broker to find out what other products are out there. You may find that switching your loan gives you access to lower interest rates and some useful new features.
Alternatively, you could use the information you find as leverage against your current lender. Most lenders want to keep reliable clients. If you’ve made on-time repayments, you may find that your existing lender offers a better deal when you threaten to leave.
Those are some long-term options. You could also switch your home loan to interest-only periods for a short while. This will help you to deal with more immediate cashflow concerns.
Tip #3 – Look at Other Income Streams
Theproperty investment basics don’t always cover the other income streams your property may have to offer.
Take some time to think about how you could use your property to generate more than the rental income.
For example, you could lease the side of the building as advertising space if your property is near a busy road. Alternatively, you could lease out any unused parking spaces. Each offers a little extra income beyond your property’s rental income. Remember, that every little bit can help when you have cashflow problems.
Tip #4 – Examine Your Outgoings
Reducing costs is a crucial part ofproperty investment. For beginners, this means taking a detailed look at your figures. You may find that you’re paying too much for your insurance. Or, you could negotiate a better deal with your property managers.
Many who encounter cashflow issues find that they’re paying too much for various services. You may also be paying for things you don’t need. For example, you could handle some basic maintenance issues yourself, rather than hiring somebody to do it for you.
Again, this frees up small amounts of cash. Nevertheless, you’ll improve your cashflow with each positive change to your outgoings.
Tip #5 – Get on Top of Depreciation
It’s amazing to think about how many new investors don’t think aboutrental property depreciation rates. They don’t investigate the claims they could make on their assets. Instead, they keep plugging away without a depreciation report. Alternatively, they assume their accountants have factored depreciation into their tax returns.
You need a depreciation schedule. If you don’t have one, you’re cheating yourself out of thousands of dollars.
Hire a quality Quantity Surveyor to draft a full depreciation schedule. Your surveyor will ensure you claim the maximum amount over the lifetime of each asset. Furthermore, you’ll learn more about tax compliance in your state.
Your Next Step
You’ll make both short and long-term improvements to your cashflow if you follow these tips. You can handle the first four with the help of an accountant and mortgage broker. However, you need additional help to create a depreciation schedule.
Washington Brown has the answer. Speak to one of our Quantity Surveyors today to get a quote.
An investment property tax deductions calculator won’t always show you everything you can claim. Many leave out the assets that go into a typical depreciation schedule. Here are the things that your tax depreciation schedule must contain.
When it comes to tax, there’s one question you must ask about your investment property: what can I claim?
There are the basics of course. Everybody looks into mortgage tax deduction. Australia is full of financial experts who can help with this issue. You may even find that an investment property tax deductions calculator can do the basics for you.
But what about property depreciation? It’s a type of deduction many investors miss, but it could save you thousands of dollars every year. Others make claims, but do so using the wrong schedule. Again, they end up missing out on thousands of dollars in savings.
You need to call in the experts. No, that doesn’t mean your accountant. Instead, a Quantity Surveyor is the professional you need to create a strong depreciation schedule.
The typical schedule will include the depreciation of capital works and equipment. However, some leave out other, less obvious, assets. Here’s what your depreciation schedule must contain if you’re to maximise your deductions.
You may have chosen a unit or apartment as your first investment property. Australia has several cities, which can make such properties a wise investment choice.
Naturally, you’ll claim depreciation on your unit’s assets. But what about the assets that it shares with other units in the apartment complex? You can claim for your portion of those too, but many investors miss out on these deductions.
Common items include fire extinguishers, air conditioning units, and lifts. You can also claim for ventilation and hot water systems. You don’t get to claim depreciation on the full value of the asset, but even a little bit can help with your cashflow.
Item #2 – Scrapped Items
Let’s assume you’ve carried out some renovations on your property. Oftentimes, you’ll have a bunch of assets left over that you no longer have a use for. Many just throw such items away, without giving them a second thought.
That’s a mistake. Old items have what’s known as a scrapping, or residual, value. This is the item’s value once it’s reached the end of its use.
You can claim a final depreciation sum on any items you intend to throw away following renovations. Such items include old appliances or carpets. Have a Quantity Surveyor create a new depreciation schedule prior to your renovations. This will ensure you catch any assets with scrapping value.
Item #3 – Common Outdoor Items
Let’s come back to shared items. It’s not just the common indoor items you can claim depreciation on. Any common items outside the apartment block itself have value to you as well.
This includes pathways, fences, and various landscaping items, such as pergolas. You may even be able to make claims on a shared swimming pool.
However, you can’t claim for all common outdoor items. For example, turf and plants won’t find their way into your depreciation schedule.
Item #4 – The Fees You Pay to Design Professionals
Did you realise that you can include the fees you pay to design and construction professionals in your tax deductions? Australia offers plenty of opportunities to build your own property. Investors often go down this route, rather than buying an existing property.
Your depreciation schedule must account for the costs of such construction work. This includes the money you paid to any designers or architects who worked on the project.
Make sure you supply your Quantity Surveyor with accurate receipts for these services. This will allow you to maximise your claim for the fees you pay.
Item #5 –Money You Pay to the Council
You may have to pay fees to the council for various services. For example, there are costs involved with lodging application fees, or getting council permits.
If you’re building your own property, you may also have to spend money on infrastructure. This might include gutters and footpaths.
Your depreciation report should include all these items. Again, this is something that many investors miss out on because they don’t think the costs relate directly to their properties.
The Final Word
Check your depreciation report again. Does it include all the items on this list? If not, you’re missing out on several Australian Taxation Officer (ATO) tax incentives for homeowners.
You need the help of Washington Brown to create an accurate tax depreciation schedule. Call us today to speak to one of our Quantity Surveyors about your property.
Six Things To Know Before Buying an Investment Property:
You may be thinking about buying an investment property. Australia has a strong property market, which attracts a lot of buyers. However, there are some property investment basics to keep in mind.
The attractive Australian house market has many people investing in property. For beginners, this means learning the property investment basics that will lead them to success. After all, property isn’t a sure thing. It may offer more security than investing in stocks, but you have to put the work in to generate an income.
So what do you need to learn before you invest in a property? Here are some things you must know about property investment for beginners.
Issues #1 –How Much You Can Borrow
You need to know how much you have to spend before looking for an investment property. If you don’t, you run the risk of finding the perfect property, only to discover that you can’t afford it.
You can get a general idea for how much money you need when buying an investment property.
Calculator websites allow you to enter some figures to produce a rough estimate. They’ll ask about your income, in addition to any expenses you currently incur. These include everything from your debts, through to the dog food you buy each week.
However, you won’t know for certain until you speak to a lender. Most importantly, you must find out how much of the property value you can borrow. This will tell you how much money you must raise for your deposit.
Issue #2 – Your Investment Plan
Most people approach property investment with a simple end goal. They want to make enough money from their property to quit their jobs. However, many don’t really understand what this means. Enough money for one person may not be enough for another.
So, you need to have a plan in place before you start investing. Work out how much income you need your investments to generate before you can live off the proceeds.
This is your real goal. A vague notion of early retirement won’t keep you focused. You need to know exactly what you’re shooting toward before you invest your money.
Issue #3 – The Different Types of Gearing
You may have heard of gearing, without really understanding the concept. You need to learn what gearing is to create a strong investment plan.
There are three types of gearing: positive, negative, and neutral. Positive gearing means that your property generates enough income to cover its expenses, with money left over. You have to pay tax on your income when you have a positively geared property.
Negative gearing means your property doesn’t generate enough money to cover its costs. This may sound like a bad thing. However, you can use negative gearing to your advantage. Many investors offset the losses their properties make against other income sources, such as their salaries.
As the name suggests, neutral gearing means the income covers the costs. You don’t make any profit, but you don’t lose money either.
Issue #4 – The Choice Between City and Rural
There’s a huge difference between city and rural properties. City properties give you access to more people, which makes it easier to fill vacancies. However, rural properties allow you to charge higher rents. You can also buy rural properties for less money.
So, which do you choose? It all comes down to what you want to achieve. City properties tend to enjoy higher capital growth than rural properties. However, it’s easier to positively gear a rural property.
You need to do your research before creating any property investment strategies. Australia offers all sorts of opportunities. Consider area population, local economies, as well as demand when choosing where to buy your property.
Issue #5 – Who Provides Legal Advice?
You’ll have a choice between conveyancers and solicitors when looking for legal advice. Both work in law, but they’re slightly different.
Conveyancers focus solely on property law. They’re highly specialised, but won’t be able to help you with any issues that aren’t directly related to the property. Solicitors offer well-rounded knowledge on a range of issues. However, they also cost more money.
Your choice depends on the property. If you anticipate a lot of legal issues, hire a solicitor. This usually costs between $2,000 and $3,000.
A conveyancer costs approximately $1,000. Use these professionals if you anticipate a simple transaction.
Issue #6 – Your Exit Strategy
You should achieve success with proper planning. However, that doesn’t mean that you don’t need an exit strategy.
Your exit strategy determines how you’ll generate a profit from your investment. For example, you could decide to sell after a set amount of years to take advantage of capital gains.
Alternatively, your exit plan may involve benefitting from the rental yield until you retire. Upon retirement, you could move into the property, rather than sell it.
The main point is that you need to know how you’ll exit the investment. If you don’t, you can’t take full advantage of the property during your ownership period.
The Final Word
Investing in property could help you to enjoy a greater level of financial comfort. However, poor preparation will lead to mistakes and potential losses. You need to know how to maximise your investment before you commit your money to a property.
Washington Brown can help you with that. Our Quantity Surveyors can help you to calculate how much you can claim in depreciation. Get in touch today to find out more.
When trying to figure out how to invest in property with little money, many new investors look toward discounted properties. However, there are some risks you must keep in mind.
Foreclosure is an ever-present risk for Australian homeowners. Failure to meet your mortgage repayments could result in your lender taking possession of your property. It’s an issue that affects thousands of people every year. In Victoria alone, almost 1,000 people had their homes repossessed between 2014 and 2015.
Foreclosed, or discounted, properties present an opportunity for property investment for beginners. In fact, many make discounted homes their first investment property in Australia.
However, buying a foreclosed home is not always simple. Here are six things you must watch out for when purchasing a discounted property.
Issue #1 – Your Own Finances
When a lender forecloses on a property, they take ownership of it. As a result, you buy discounted properties directly from the previous owner’s lender.
What does this mean for you? For one, you can expect the lender to want to get the transaction over with as quickly as possible. You’ll have to deal with a shorter settlement period, and the lender will want to see that you have your finances in order. Furthermore, having pre-approval on a home loan isn’t always enough. You need to have more concrete evidence that you have the money to spend.
Make sure your finances are in order before trying to buy a discounted investment property in Australia.
Issue #2 –The Quick Settlement
As mentioned, you’ll deal with a quick settlement period when buying a discounted investment property in Australia. This is because the lender needs to get the property into somebody else’s hands. The longer that takes, the more time the lender has to wait before recouping their costs.
Prepare yourself for this ahead of time. Make sure you have a solicitor in place who will prioritise the transaction’s paperwork for you. Furthermore, work closely with your own lender to ensure nothing can go wrong with your mortgage application.
Failure to meet the conditions of the settlement could lead to you paying penalty fees. Suddenly, your discounted property costs more than you expected.
Issue #3 – The Need to Make Repairs
Foreclosures are not pleasant situations. The previous owners will have vacated the property quickly. They will also have been going through some financial difficulties. As a result, maintaining the property would not have been a priority.
Expect to make repairs to several fixtures and fittings. It’s also likely that you’ll have to clean up before you can start using the house as an investment property in Australia. Worst case scenario, you’ll have to renovate extensively.
Factor this into your budgeting before you buy the property. You won’t be able to use your discounted property to generate an income if it’s in a state of disrepair.
Issue #4 – The Effects of Unruly Previous Owners
Those undergoing foreclosure will feel a lot of stress. After all, they’re facing financial issues and the prospect of losing their home.
In some cases, the previous owner may have lashed out against the property itself. There are reports of investors buying discounted properties, only to find extensive damage. You become responsible for fixing this damage as soon as you take ownership of the property.
You can avoid this problem if you arrange a building inspection. Have an inspector ready to go as soon as you make contact with the lender who owns the property. This ensures that you find any deal-breaking issues before the transaction reaches settlement.
Issue #5 – The Location
Buying a discounted property doesn’t mean you should forget about the location. Checking the property’s location is one of the property investment basics.
Take some time to visit the area, so you can get a feel for the neighbourhood. Also, remember that the pictures you see aren’t fully representative of the property. The seller uses those images to make the property look as attractive as possible.
As a result, you need to visit the property yourself at least once before making your offer. If the location isn’t suitable, no discount is worth the risk.
Issue #6 – Your Research
You may forget to do your research in your rush to buy a discounted property. The faster settlement doesn’t help with this. You have a lot of pressure on your shoulders to get the deal done quickly.
Some investors use this as an excuse to research less thoroughly. Don’t fall into that trap. You need to know if the property has the potential to contribute to your portfolio.
Examine the usual data. Check to see how local property prices have fluctuated over the last few years. Have a plan in place for what you’ll do with the property once you have it. It’s also worth checking tenant demand, assuming you wish to use the property to generate a rental income.
The Final Word
Buying discounted properties could help you to make a lot of money as an investor. However, you shouldn’t go into any deal without checking all the issues.
You also need to consider how you’ll claim deductions on your new property. Washington Brown can help, so contact us today to find out how much you can claim.
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