A Property blog by Paul Bennion.

Just a few years ago mining towns throughout regional areas of Australia where the darling of property investors.

Property prices were booming and investors were achieving annual rental returns in excess of 20% in some areas.

Thousands of property investors poured into these mining towns whether they were located in Queensland or Western Australia.

However, the sudden slump in commodities has seen a radical turnaround in these mining towns with property prices crashing in line with plummeting rental returns.

The scale of this property downturn is highlighted by the latest snapshot of the once booming Port Hedland and South Hedland property markets as noted in the March quarter 2015 property market summary by the Pilbara Development Commission:

Port Hedland’s average advertised rental price dropped for a tenth consecutive quarter, from an all-time high of $2,544 per week during the September 2012 quarter, to a seven year low of $968 per week in the latest quarter.

South Hedland’s average advertised rental price decreased by $88 to $877 per week, which is the lowest average advertised weekly rental price since the June 2008 quarter.

For the tenth consecutive quarter the average advertised ‘for sale’ price of properties in Port and South Hedland dropped.

  • Port Hedland’s average advertised ‘for sale’ price of $758,840 in the latest quarter is at its lowest since the March 2007 figures.
  • South Hedland’s March 2015 average advertised ‘for sale’ price of $653,009 is the lowest it’s been since the September 2009 quarter.
  • The 46 residential lots in South Hedland, advertised in the last quarter, is the highest number of lots advertised since the June 2009 quarter
    Source Pilbara Development Commission

Falling rental returns means that property investors in mining towns need to fully maximum tax benefits such as through depreciation to boost their cash flow.

In an attempt to boost cash flow, Deppro is finding that a growing number of property investors in these mining towns are trying to make up for the recent crash in rents by undertaking renovations to make their properties more appealing to investors and thereby boost rental returns until the next market upswing occurs.

Unfortunately, many of these investors throw out many household items during the renovations without understanding that they may claim tax benefits on these materials at 100% of its written down value in the year of disposal.

However, to qualify for these tax benefits, the investors have to undertake a depreciation schedule for the property as near as to the date of purchase as possible.

The depreciation schedule will provide the Tax Office with a ‘physical snapshot’ of the property and the schedule will itemise all of the fixtures in the property that can be depreciated for tax purposes.

When the depreciation schedule is undertaken at the time of purchase, it means that the investor can still qualify for depreciation on many of the existing fixtures in the property providing the investor intends on keeping those existing fixtures/items and waits for a reasonable time to begin renovations. Many people do not realise that older properties still maintain substantial allowance in plant and equipment regardless of their age.

For example, a property that is more than 50 years of age could still qualify for thousands of dollars each year in tax depreciation benefits for the owner.