Property Depreciation Schedules - The New reality

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.”

How to Stay Under the ATO’s Radar…

Learn how to stay under the ATO’s radar by watching this video

A depreciation schedule on your investment property can generate significant tax savings – as long as it has been complied correctly.
In my experience there are three areas the ATO tends to target come tax time.
One of them is whether you’ve claimed repairs and maintenance correctly. This can be tricky. Depreciation Calculator

Your property must also be income producing in order to claim depreciation.

For instance, if you make a repair while living in the property, then move out 2 months later, you can’t claim it.

The third area of concern is in relation to the building allowance.

The building allowance refers to the wear and tear on the actual building – things like bricks and concrete. You have to make sure they’re being claimed in the right category and not alongside items like carpets and blinds, which are considered plant and equipment.

The building depreciation allowance must also be claimed on construction costs – NOT the purchase price of your property. A mistake I see time and time again.

And that’s where we can help. Quantity Surveyors are recognised by the Australian Tax Office as the right people to estimate these costs. NOT valuers nor real estate agents.

So there you have it. To stay under the ATO’s radar, make sure:

Your repairs are being claimed correctly
The property is an income producing asset
The building allowance is based on the construction cost.
And most importantly, use a qualified quantity surveyor.

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

Construction Cost Estimating: A Case Study

construction cost estimating

Construction cost estimating examples Case Study

Client: Commonwealth Bank/Ecove Group

Project description: Site 3, Sydney Olympic Park, NSW Depreciation Quote Schedule

This development comprised a 25-storey tower, housing two retail tenancies and 267 apartments over four basements. A two-storey commercial pod, consisting of six commercial tenancies, including associated site works, also formed part of the development.

Washington Brown provided pre-contract cost planning services to the developer, as well as a full cost management auditing service to the financier during the construction phase.

We also provided monthly contractor payment recommendations and reporting to the financier, along with variation assessment, cash flow analysis and contractor reviews.

Washington Brown worked to ensure the builders maintained the lump sum contract price and the financier’s/developer’s interests were maintained at all times.

Work out how much you save using our free property depreciation calculator or make it happen and get an obligation free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Using a Construction Cost Estimator

construction cost estimator

Whether you’re building a block of residential units, a commercial or business centre, a high-rise tower or developing a subdivision, it is a must that you are in control of the project cost. We all know that effective cost management is critical to a project’s success.

Washington Brown has extensive experience in all major sectors of the property industry over the last 30 years. This expertise and knowledge is fundamental when assisting our clients in completing their projects on time and on budget.

We have been involved in a wide range of development projects where we have acted as the cost controller on behalf of lending institutions. Our best-practice cost planning service ensures you get accurate cost and construction information for every stage of your project.

We offer specialist advice in the following nine broad areas:

  1. Financial auditing of projects Depreciation Calculator
  2. Development monitoring
  3. Procurement
  4. Construction-contract review and assessment
  5. Feasibility studies
  6. Sustainability advice
  7. Risk identification and management
  8. Value engineering
  9. Tender review and selection.

Washington Brown’s ongoing project monitoring, coupled with our robust reporting systems, helps us detect issues early, giving you time to address them quickly and in the most cost-effective way.

We can monitor, analyse and report on:

We have developed a cost report for the project monitoring that easily identifies the current project financial status, cash flow analysis, variation assessment and risks.

If you need help minimising the risk of overruns on your next construction project – talk to our construction estimating team today.

This blog is an extract from CLAIM IT! – grab your copy now!