A Finance blog by Paul Bennion.
The latest figures for the residential rental market produced by Australian Property Monitors covering the June 2014 quarter show a wide divergence in the performance of capital city markets.
These figures reveal that after a significant period of flat rental growth, the median asking rent for a house in Sydney increased by +2% to a new record high of $510 per week.
In tandem for house rents, Sydney unit rents have continued to rise, now reaching a peak level of $500 per week just below the asking rent for houses. Rising well ahead of the inflation rate, Sydney unit rents have now increased by +5.3% over the past year and are clearly the most expensive of all the major capitals.
While the rental figures show that Melbourne house rents were flat at $380 per week over the June quarter, they still increased by +5.6% over the year. This is the highest rate of growth recorded of any capital city rentals during the twelve months to the end of June.
On the other side Australia, Perth recorded the biggest fall in rents over the past year with the median weekly rental asking price for a house dropping by 6.6% to $460. Asking rents for units in Perth also fell by 5.9% over this period.
Another important trend highlighted by these figures is that apartments continue to deliver investors higher rental returns that houses.
In Sydney, for example, during the June quarter 2014, apartments delivered investors a rental return of 4.72% compared to a rate of 4.32% for houses. Even in Perth, the rental returns for apartments during this period were 5.02% compared to 4.67% for houses.
These higher returns for apartments and units are a major reason why over 40% of the tax depreciation reports undertaken by DEPPRO are property investors buying these higher density homes compared to traditional houses. In addition to higher rental returns, apartments and units are also favoured by investors they tend to offer higher tax depreciation benefits.
Many of the deprecation reports DEPPRO prepare for clients who purchase an apartment are completed to maximize their tax benefits in line with the start of a new financial 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 tax payer 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 of the property.