A Property blog by Paul Bennion.
One of the most significant trends in the Australian property market has been the movement away from traditional family homes to higher density living.
This trend has been confirmed by the latest ABS figures for building approvals that show approvals for higher density homes such as apartments surged by 36% over the past year while approvals for traditional houses actually fell by 1%.
It is also very significant that these ABS figures for February 2015 reveal that there were nearly as many building approvals for higher density homes (9,102) as houses (9,441).
Major changes in demographics such as more people living alone and smaller families are driving this demand for higher density homes such as apartments.
This long term trend towards smaller house hold sizes is underline by the fact that during 1911, the average number of people living in a private dwelling was 4.5%, then fell to 3.5 by 1966 and is now around 2.7 persons per household.
Property investors throughout Australia have been capitalizing on this trend by purchasing higher density homes such as apartments and townhouses in greater numbers over recent years. This is because the rental demand for these type of higher density homes is growing due to these changing demographic dynamics.
Anyone who is considering buying an apartment for investment purposes show consider that the peak sales activity for these homes tends to be around the start of the new financial year.
This trend is underlined by the fact that more than 60% of the property depreciation reports which DEPPRO prepares are during the months from June to September.
However, the number of depreciation reports we undertake for investors who purchase an apartment tends to peak during July and August because many people decide to buy an apartment for investment purpose after visiting their accountant at the start of the new tax year.
Indeed, many of the deprecation reports we prepare for clients who purchase an apartment are completed to maximize their tax benefits in line with the start of a new financial year during July and August.
Completing their tax returns focuses their mind on the tax advantages relating to owning a property such as negative gearing and depreciation.
Anyone who is considering buying an apartment for investment purposes should therefore consider making a decision now rather than waiting until activity in this sector of the property market increases later in the year.
While there are many issues concerning the depreciation entitlements on properties, in most cases, strata style homes such as new apartments provide a higher rate of depreciation than houses – all being equal.
Buying a new apartment, for example, can provide a taxpayer with considerable depreciation benefits because of the significant tax benefits they offer through depreciation.
Some DEPPRO clients are achieving that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property. In some cases these tax benefits can total $300,000 based on a purchase price of $500,000
A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation schedule. Even an older style apartment can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken for the property.