A Finance blog by Paul Bennion.

Australia’s love affair with renovating is expected to continue over the next 12 months with property prices on the rise and equity levels in property beginning to improve.

The latest figures from the Australian Bureau of Statistics (ABS) reveal that in 2012 building approvals for home renovations totalled $6.35 billion or around $500 million every month. With property prices now beginning to show improvement, spending on home renovations is expected to jump significantly during 2013.

According to Paul Bennion, Managing Director of DEPPRO, once the value of homes begins to rise, it becomes more financially attractive for homeowners to renovate.

“One of the dangers of home renovations is that you can overcapitalise your home. This is especially the case when property values are stagnant or falling. However, recent data indicates that property prices are now recovering due to low interest rates,” Bennion said.

“We are now finding that astute investors are taking advantage of very competitive house prices and low interest rates to purchase homes where they can significantly boost rental returns through renovations.”

According to Bennion, common refurbishments include renovations to kitchens and bathrooms, which account for around 60% of the budget, with the remaining 40% being spent on lounge, family and bedrooms.

Bennion warned however, that many investors do not understand that they can qualify for significant tax benefits when undertaking a home renovation on their investment property.

“Many investors throw out items without understanding that they may claim tax benefits on these materials at 100% of the written down value in the year of disposal.

“The cost of a home renovation typically ranges from $20,000 to $60,000 for a basic renovation and an investor can qualify for both plant and capital works allowance as a tax deduction as well as claim the residual write off of the disposed item.

“But to quality for these tax benefits, investors must undertake a depreciation schedule for their property as soon as possible after the date of purchase,” Bennion said.