A blog by Paul Bennion.
The latest ABS figures show a major jump in building approval figures for residential construction in Australia. During May 2014, a total of 16,425 new dwellings were approved which is a rise of 14.3% over the past year. Most significantly, the approvals for higher density homes such as apartments and units surged by 19.9% over the same period.
New higher density homes are traditionally favoured by investors and this trend is underlined by DEPPRO figures which show a major jump in tax depreciation reports our company is undertaking for investors buying new apartments and units throughout Australia over the past year. Over the last year, property investors have help the drive the demand for new housing especially higher density homes such as apartments which in turn has resulted in a new building boom in a number of capital cities.
Interest rates are very low and with property prices rising, developers are now finding it much easier to sell apartment developments off the plan to property investors. However, it is unfortunate that many first time property investors who purchase new apartments and units for investment purposes are still the most common group of investors who fail to obtain the full tax depreciation entitlements. These first time investors fail to understand that the tax benefits from depreciation can be just as important as rental income. This is particularly the case with people buying an apartment because one year’s depreciation allowance could be equal to several years of rental income.
While there are many issues concerning the depreciation entitlements on properties, in most cases, strata style homes such as apartments provide a higher rate of depreciation than houses – all being equal. Currently, there are a large number of new strata developments being sold to investors in Australia. Generally, owners of these strata style homes only depreciate the internal fixtures of the property without taking into account other items such as common property areas including car parking and recreational facilities.
Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property. For investors buying a new apartment this can equate to over $250,000 in possible tax benefits through depreciation. A large proportion of these tax benefits are never claimed which means that each year hundreds of millions of dollars in tax benefits are lost every year by investors not claiming their legitimate entitlements.