Canberra turns 106 today (Canberra Day) and our nation’s capital, which was officially named in March 1913, is stacking up against Sydney and Melbourne in terms of its affordability as an investment option.
According to CoreLogic, the Australian Capital Territory (ACT) employment growth remains robust, unemployment is the lowest of any state or territory, migration is trending higher and wage growth across the public sector has been consistently stronger than the private sector. This is also being reflected by the ACT capital city, where high household incomes, the ratio of dwelling price to income in Canberra is unchanged at a healthy 5.0 per cent.
According to statistics supplied by Colliers International, Canberrans earn $300 per week more than the national average, so prospective tenants are in a better position to afford rent. For investors this means they can be confident of securing a tenant, leasing at a comparatively high rate of return and enjoying an excellent chance of capital growth in the future.
Over the past five years, Canberra has recorded a 4 per cent climb in dwelling values annually, which is nearly equivalent to the rate of the capital gain recorded over the 2018 calendar year.
A 2019 report compiled by SQM Research showed that, while Sydney and Melbourne have been hit the hardest by last year’s property market downturn, Canberra was also the only capital city where asking prices increased for both houses (at 3.4 per cent) and apartments (at 7.9 per cent) during 2018. SQM Research also stated, the birthday city’s home prices expected to continue rise at a pace is similar to 2018.
Canberra is also in the midst of an apartment boom, which shows no signs of abating. With a vacancy rate of 0.6 per cent and a population increase soaking up any oversupply of apartments, the rental market is tight and rents are some of the highest in the country.
By comparison, the Sydney median apartment prices are now at $740,000, while Canberra median apartment prices are at $411,000. Median rental yield for units in Sydney are only 3.9 per cent, while Canberra’s rental yields are much stronger at 5.8 per cent. Therefore, Canberra presents a lower entry point for purchase with a much greater rental return than Sydney.
Investing in Canberra
Canberra has a population just topping 403,000. It is a three hour commute to Sydney, only two and a half hours to the snow fields and an easy two hour drive to the coast. Its mix of location, demographics and culture make Canberra an attractive investment location.
Let’s take a look at the depreciation deductions an investor could claim based on the average purchase price of an apartment and three-bedroom house in the Canberran suburb of Deakin.
The depreciation deductions in the example have been calculated using the diminishing value method.
As the above table shows, the owner of a brand-new two-bedroom unit with a purchase price of $489,990 can claim $14,014 in depreciation in the first full financial year alone. This adds to an impressive $61,165 in cumulative depreciation deductions in the first five years of ownership.
To compare, let’s look at the depreciation deductions available in a typical second-hand, three-bedroom renovated house in Deakin, purchased in January 2018 with a purchase price of $1,149,500. In the first financial year, the owner can claim $8,935 in depreciation. Over the first five cumulative years, this figure increases to $44,675.
Considering investors can claim depreciation deductions over the life of the property (40 years), you can see how claiming these deductions will dramatically improve the investor’s cash flow and why it shouldn’t be overlooked.
If you have a property and aren’t already claiming depreciation, request a quote for a tax depreciation schedule today. Alternatively, if you have a depreciation schedule but want to check if you’re maximising your claim, contact the expert team at BMT Tax Depreciation on
1300 728 726.