For anyone in the property investment game, tax depreciation is a vital tool in improving cash flow and maximising returns on an investment.
Not just for investors, property depreciation is something Property Developers should take advantage of as well. Ultimately, it can be used as a sales tool to make a project more appealing to investors, improve the affordability of the project and help it sell faster.
Here are five ways that property depreciation can assist Property Developers.
1. Appeal to savvy investors
Investors love numbers. In order to determine if a property will be a viable investment, any savvy investor will want to crunch all the figures thoroughly before considering a purchase. Depreciation is a significant cost they should take into consideration in order to accurately work out the true cost of the property. Without depreciation estimates investors will be ill-informed and for developers, this could mean the difference between making a sale or the investor turning to another property with more concrete figures readily available.
2. Provides more detail for off-the-plan sales
A qualified Quantity Surveyor can provide tax depreciation schedules for existing properties as well as estimates for those still in the construction stage. As outlined in Tax Ruling (TR) 97/25, Quantity Surveyors are recognised on the list of professionals deemed qualified to provide construction cost estimates.
Construction cost estimates establish the depreciation potential of a property, and these figures and projections can improve buyer confidence in off-the plan purchases where there is no physical property for investors to inspect.
To receive an estimate for a future or current project, developers simply need to supply a Quantity Surveyor with the purchase price list, a copy or draft of the strata plan, a schedule of finishes, basic floor plans and any associated marketing material.
3. Depreciation increases the affordability of the project
Any new development will be more affordable when you factor in the property depreciation deductions that can be claimed. A depreciation estimate will outline what returns the owner can expect in the first year of ownership (often $5,000-$10,000 for a residential property), and every following year of the asset’s life. By showing owners these real figures, they can see their immediate and long term returns and not just focus on the initial upfront costs, thus making the project more affordable.
4. Get more depreciation from newer properties
Depreciation deductions can be claimed for both new and older properties, but newer properties benefit more. Depreciation is made up of two components – capital work deductions (relating to the structure of the building, such as floors and ceilings) and plant and equipment assets (removable assets within the building such as furnishings). As set out by the ATO, the owner of a brand new property is eligible to claim the full deduction for the entire cost of the building structure over forty years. Owners of properties that are not brand new can only claim the remaining years available. In addition, new properties usually contain plant and equipment assets that are higher in value. This increases the depreciation deductions available for the owner.
Therefore, investors who purchase a brand new property will be able to take advantage of the full forty years of capital works deductions, thus making tax depreciation beneficial for all new developments. This benefit is one which developers can communicate to buyers who might be tossing up between a new development and an existing property.
5. Make it easier for the buyer and improve your service
Give potential buyers an easier and smoother decision making process. As mentioned previously, investor buyers will want to know depreciation estimates in order to make an informed purchase. Take some of the hassle out of the buying process for interested investors by providing these estimates in the sales package and having this information readily available. This way, they won’t have to go out and organise it for themselves and you remain the main point of contact for the development, improving your customer service offering and expertise.
Depreciation estimates are available for both residential and commercial developments.
Any developer wanting to learn more about property depreciation and how it can assist in selling their project should visit the Property Developers page on our website, or call our expert team on 1300 728 726 for obligation free advice.