» Investing in property

Property Market Update 2024

BMT team — Mon, 15 Jan 2024 23:34:44 +0000

2023 was a year filled with more than its fair share of challenges, but Australians are tough and the property market was resilient in the face of multiple interest rate hikes and hesitant investor sentiment. Residential home prices across Australia grew by 7% over the year to November 2023, with dwelling prices in the combined capital cities peaking in May, slowing again towards the end of 2023 and settling at 8.2% growth over the year. In contrast residential property values in regional areas showed slower growth, at a rate of 3.4% over the past year. Interest Rates As expected, interest rates continued to rise and many fixed-term mortgage rate loans came to an end, putting some Australians under mortgage stress. Despite these pressures, residential house prices continued to grow, due to the continued imbalance between housing availability and strong demand. This housing imbalance has also impacted the rental market with national rental increases averaging 8.1% over the past year. Despite these increases in rental values, rental yields have shown much smaller growth rates due to interest rate hikes impacting mortgage repayments. Loan Approvals First time loan approvals have increased by 11.8% over the past year, but investor lending was still strong, comprising of more than a third of total approved loans across Australia in 2023. Rising interest rates have done little to slow down the residential property market outlook in most parts of Australia, with monthly sales volumes trending higher than the five-year average despite rising house prices and tighter lending. This upward trend in residential property prices is forecast to continue well into 2024 due to the housing shortage. Investment in alternative property classes will continue to grow in the year ahead. The return of international students is expected to stimulate the demand for student housing and Build-to-rent investment opportunities. Recovery in tourism will also boost consumer demand and growth in the hotel and short-term accommodation market. In line with this predicted growth, we at BMT have seen 15% growth in tax depreciation schedule orders for hotels and motels, affirming the expansion of this sector. Commercial Property Commercial property investors will remain focused on attracting top tenants who are prepared to pay for prime location and amenities, reinforcing the ‘flight to quality’ trend. BMT Tax Depreciation Schedule orders in the industrial sector have grown by 8% while the embattled office sector has shown a 6% decline in the request for tax depreciation schedules in line with market trends. BMT News Overall, it was a challenging but positive year for BMT. We completed more than 40,000 depreciation schedules in 2023, earning our clients hundreds of millions in tax deductions. In 2024 we will have completed close to 1 million depreciation schedules across Australia; an accomplishment that solidifies our position as the number one choice in tax depreciation. In 2023 the Australian Institute of Quantity Surveyors released a white paper validating our approach to property depreciation, insisting that a site inspection by an expert quantity surveyor remains the most reliable way to maximise the depreciation deductions on an investment property. They have also encouraged our industry to move away from referral fees, a practice that BMT has always avoided. Video link We look forward to another great year of partnering with you at BMT. To maximise the tax depreciations on your investment property Request a quote.

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Discover the tax benefits available to granny flats owners

BMT team — Mon, 26 Sep 2022 02:18:41 +0000

For many years granny flats have been an increasingly popular way to invest in property. Granny flats can boost a property’s value substantially and increase rental yields. Granny flats (also known as secondary dwellings) are self-contained units that have a kitchen or kitchenette, bathroom, bedrooms, a laundry and living area. They’re popular for older family who require ongoing support, as Airbnb’s (more so if the location is in a tourist area), and for people simply wanting to boost their cash flow. Some people are even moving into their granny flat and renting out their main home to maximise earning potential. In this article we explore the benefits of granny flats, each state’s regulations and how depreciation deductions can maximise an investment return. Tax benefits of a granny flat State regulations Maximise investment return with depreciation Tax benefits of a granny flat There are many benefits to granny flats including earning a rental income, quick returns, access to tax benefits, growth in property value, and space for family growth. The cost of constructing a granny flat is cheaper and can yield quicker returns than alternative residential investment properties such as a house or an apartment. The price of constructing a granny flat can be anywhere from $80 000 up to $300 000 plus and construction is usually scheduled between twelve to fourteen weeks from start to final handover. Prices depend on size, fixtures and fittings, the land it’s built on (for example if the land is on a slope construction may cost more) and existing services (if the granny flat is further away from your power and sewerage system it may cost more to connect them). This doesn’t include council or application fees. Some councils require fees and contributions be paid before building which go toward the additional services and infrastructure required as a result of a development. Because a granny flat is income producing there are a variety of tax benefits available including depreciation] and claiming costs such as rates, insurance, interest rates, repairs and maintenance. A typical granny flat can produce a rental income of anywhere from $250 -$500 a week depending on location, size and level of finish. Renting out a granny flat doesn’t only improve cash flow but allows owners to pay off their mortgage quicker. It’s important to note that while there are many benefits to granny flats it doesn’t guarantee the house will grow in value and can potentially reduce the buyer pool when selling as some people don’t want a granny flat on the property. There are also possible capital gain tax implications to consider. State regulations Each state has varying rules to how granny flats can be used, including if they are permitted to produce an income, who can occupy them and where they can be constructed on the property. In New South Wales granny flats can be built without council approval and can be occupied by anyone. The property can’t be smaller than 450 square metres, must maintain a three-metre setback from the rear of the property, a 0.9-metre setback from the side boundaries and can’t exceed a maximum internal space of sixty square metres. They can’t exceed the maximum building height of 8.3 metres, must maintain a three-metre distance from any existing tress over four metres tall, can’t be built over an easement and the property must have residential zoning. In the Australian Capital Territory (ACT) granny flats can be built and occupied by anyone with council approval. The property must be at least 500 square metres, the granny flat can’t be smaller than forty square metres and no larger than ninety square metres, in a residential zone, compliant with the total plot ration for the block and compliant with the Australian Standard AS 4299 Adaptable Housing Class (Class C). They must be a water sensitive urban design, compatible with exterior building materials of existing buildings in the neighborhood and compliant with setbacks. Granny flats in the ACT must have one parking space which cannot be in the ‘front zone’, clear unobstructed pedestrian access, reasonable levels of privacy and private open space for tenants. Under emergency planning changes to help alleviate the housing crisis granny flats in Queensland can now be occupied by anyone. Previously in order to rent out a granny flat to any non immediate family member council approval was required. Without council approval granny flats can’t be larger than eighty square metres and built no further than twenty metres from the main house. Two storey granny flats can’t be taller than 9.5 metres, the rear and side walls must not exceed 7.5 metres, the highest point of the roof cannot be greater than thirty degrees on small lots and can only be built in low or medium density zones. Three storey granny flats can’t be taller than 11.5 metres, the rear and side walls must not exceed 9.5 metres and the maximum point on the top of the roof cannot be greater than thirty degrees. Granny flats must have one parking space (additional to those for the main house) and a separate entrance. In Western Australia only one granny flat can be built on each lot, the lot size needs to be a minimum of 450 square metres (unless your local council states otherwise) and a maximum floor area of seventy square metres (some councils may state up to 100 square metres). Approval from the local council is required if the granny flat will be occupied by a person outside of the household. Once a granny flat is built the land cannot be subdivided (unless your local council states otherwise). The regulations on granny flats in Tasmania is complex as it varies between councils. Developing land for residential purposes requires approval from your local council and granny flats must have a maximum floor size of 60 square metres or no more than thirty per cent of the total area of the main home. All building and plumbing works must comply with the standards of the National Construction Code […]

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Debating whether to pay off a home loan early or invest in property? Here is what you need to know

BMT team — Mon, 09 Aug 2021 01:01:18 +0000

So, you’re in the position where you can pay off your home loan or get started on an investment property portfolio – congratulations! There are pros and cons to both. You should always seek professional advice before making any decisions, but in the meantime here are some things to consider. Paying off home loan early Advantages: Psychological benefits The relief of knowing that you own your home outright can far outweigh any of the financial considerations. Life has many unanticipated surprises. Unexpected expenses pop up all the time and changes to employment can occur with no warning. Not having to pay a mortgage can provide the ultimate peace of mind. Say goodbye to costly interest repayments Interest makes up a large portion of repayments over the lifetime of a loan. And while interest rates are at record lows in Australia, the longer you hold a home loan, the more interest you pay. Paying off your home loan early means that you will be saving thousands of dollars in interest repayments while reducing the impact of any future rate rises. Start ticking off other goals A home loan is one of the biggest debts you’ll have. Being mortgage-free means you can get on top of other fiscal goals like paying off a credit card or car loan, making more contributions to superannuation for retirement or saving for a large holiday. Cons: Extra fees Many lenders charge for paying off a home loan early, imposing exit, break or early termination fees. You need to factor such fees into your decision and discuss the options with your home loan lender. Being caught out with not enough cash flow Paying off a home loan may mean using a large chunk of savings. But just because you don’t have a home loan doesn’t mean you won’t face other expenses with home ownership like urgent repairs, insurances and much more. It’s important to maintain a cash buffer for these instances. Investing in a property Advantages: Wealth and equity creation Investing in property means you are not only benefiting from regular rental income, but you are also increasing your equity over time. Equity grows through a combination of paying the loan down and the property’s value increasing. More tax benefits There are many expenses involved with owning an investment property, including insurance costs, property management fees, repairs and strata fees. But as a property investor, you can claim them as tax deductions. Applying more tax deductions to your taxable income means you pay less tax. Deductions are applied to your total taxable income, including sources outside of rental income like a salary. In further good news, non-cash tax deductions are also available to investors. Depreciation is the natural wear and tear of property and assets over time and investors can claim it on their rental property. This single deduction doesn’t cost a cent to claim and can reduce tax liabilities by thousands. Setting yourself up for your future Rental income can provide an additional income stream, which can make up part of your ‘nest egg’ once you hit retirement age. Once you reach retirement age you can continue to use the rental property as a reliable income stream or choose to sell in the future and receive a large sum of money (taxes apply). Cons: Risks that can hit your back pocket Like any investment, property investing comes with its own set of risks. These are often in the forms of tenant-related risks causing loss of rental income, or property damage. An adequate insurance policy can mitigate many of the risks associated with property investing but it’s impossible to cover absolutely everything. High upfront and ongoing costs Forking out the cash to buy another property while still paying off your main residence is a huge financial decision. It requires significant financial outlay and can cause you to go into much more debt. Therefore, it goes without saying that you must factor in these additional costs when making your decision. Tools such as PropCalc can help you estimate the likely cash flow impact owning a specific property will make. The bottom line Before making any decision, it’s crucial to speak with a professional who is qualified to provide financial guidance, like your accountant or a financial adviser. They will assess your current situation, explain the likely outcomes and help you put a tailored plan in place to suit your individual circumstances. If you do go down the investing in property path, get a depreciation estimate early. Property depreciation has the potential to boost cash by thousands, especially in the earlier years of ownership when costs are higher. To learn more, contact BMT on 1300 728 726 or Request a Quote.

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What is a depreciation rate and how does it uncover thousands in deductions?

BMT team — Wed, 13 Jan 2021 01:27:31 +0000

One of the great things about owning an investment property is that you can take advantage of some significant tax benefits. There are many items that can be claimed as a standard tax deduction, such as interest repayments, insurances, council rates and property management fees. Claiming these kinds of expenses is straight-forward; you simply claim the full amount in the year the expense occurred. This includes ongoing or pre-paid expenses. However, there is another significant tax deduction related to investment properties that is often overlooked, called property depreciation. Depreciation is the natural wear and tear of a property and its assets over time. While every type of property depreciates, only owners of income-producing properties can claim depreciation as a tax deduction. Depreciation is different to other expenses in that it can only be claimed on the property’s structure and assets over several years. If the amount you can claim from depreciation spans over such a long time, how are you meant to know how much it can reduce your tax liabilities now? The answer is understanding depreciation rates that determine your depreciation deductions. Contents What is a depreciation rate? Set rate of capital works deductions Various rates for plant and equipment assets Finding depreciation rates with BMT Rate Finder What is a depreciation rate? To understand what a rental property depreciation rate is, a good starting point is knowing the principle behind them. The structure of the property and fixed assets are depreciated using capital works deductions. Meanwhile, the mechanical and easily removable assets are classified as plant and equipment and depreciate based on a unique effective life. Effective lives which determine depreciation rates are set by the Australian Taxation Office (ATO). The rates vary because a property’s assets are diverse. The structure and different plant and equipment assets depreciate over different timeframes. For example, you would expect an internal structural wall to wear out slowly and at a much lower rate compared to a washing machine. Set rate of capital works deductions Structural walls, doors, windows, roofing, tiles, driveways and other assets that are fixed to the structure are claimed as capital works deductions. Assets that qualify for capital works deductions depreciate over a forty-year period for residential property. This means the depreciation rates for all these assets and structures are set at 2.5 per cent (2.5 per cent x 40 = 100 per cent). On average, capital works make up 85 to 90 per cent of depreciation claims. When you consider what is included, from foundational structure to bedroom doors, the deductions stack up quickly. Various rates for plant and equipment assets Understanding the amount you can claim from a plant and equipment asset is slightly more complex. There is no ‘set’ rate, instead each asset holds a unique effective life, which determines the rate of depreciation. You also have a choice of the method of depreciation. You can either use the prime cost (PC) method that depreciates the asset at a uniform rate over its effective life. The second option is the diminishing value (DV) method that determines deductions at an accelerated rate based on its effective life. When the diminishing value method is used, the deduction is calculated as a percentage of the asset’s depreciable balance. The table below shows just some common plant and equipment assets found in residential investment properties, their effective lives and rates of depreciation. Finding plant and equipment depreciation rates with BMT Rate Finder It is impossible to know the effective life of each depreciable plant and equipment asset purely from memory. This is where BMT’s innovative Rate Finder tool makes the process easy. With just a few clicks of a button, you can find the effective life, prime cost and diminishing value method of all residential and commercial plant and equipment asset categories. BMT Rate Finder is available online and as an app so you can have this information at your fingertips. To learn more about BMT and the additional complimentary services they offer, Request a Quote or call the team on 1300 728 726. Learn more about the effective lives of assets: Understanding new tax ruling 2020/3 and how it changes effective life of assets

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New Queensland smoke alarm legislation, review now to ensure you remain compliant

BMT team — Fri, 23 Aug 2019 01:28:24 +0000

Queensland households are set to become the safest in Australia thanks to new fire safety regulations rolled out by the government. Let’s take a look at what these changes mean for those with investment properties in this state and also for those considering buying a Queensland property. Contents: What are the changes? When do the rules take effect? What are my obligations as a landlord? What are the obligations of a tenant? Why comply? Smoke alarm rules vary across Australian states and territories What are the changes? New smoke alarm legislation requires all Queensland residences to be fitted with interconnected photoelectric smoke alarms in all bedrooms and hallways connecting bedrooms with the rest of the property and on every level of the dwelling. The new regulations will affect over 450,000 rental properties throughout Queensland and may result in investors paying up to $2,000 for new smoke alarms. The requirements may seem like a negative due to the financial outlay but understanding how you can make this work in your favour by claiming depreciation deductions to reduce your taxable income will help you to capitalise on your investment while also protecting the safety of your tenants. A BMT Tax Depreciation Schedule outlines all the deductions you can claim for your property, including plant and equipment assets such as smoke alarms. The fee for a schedule is 100 per cent tax deductible and the schedule lasts for forty years. Where landlords fail to comply with regulations, they will be unable to rent their property. Fines may apply as well as possible criminal charges. Tenants residing in a non-compliant property are also unable to renew their lease. The Queensland Government Fire and Emergency Services website outlines the benefits of the new smoke alarms: ‘Photoelectric smoke alarms, also known as optical or photo-optical, detect visible particles of combustion. They respond to a wide range of fires but are particularly responsive to smouldering fires and the dense smoke given off by foam-filled furnishings or overheated PVC wiring.’ Interconnected smoke alarms connect to other smoke alarms in the property either through hard-wiring to a home’s mains power supply or wirelessly when battery operated. The result is if one smoke alarm detects smoke, they are all activated. Regulations require that wireless smoke alarms must be non-removable with batteries manufactured to operate the smoke alarm for ten years minimum without a need to recharge. Research shows that photoelectric smoke alarms are superior in quality to standard smoke detectors and have an increased effectiveness across a wider range of home fires. This would lead to an expected increase in the safety of occupants as well as minimising property damage as a result of early detection. When do the rules take effect? In a ten year phased approach, commencing from 1st January 2017, the Queensland government is rolling out changes requiring the installation of interconnected photoelectric smoke alarms over three specific periods. All rental properties are required to meet these requirements by 31st December 2021. Interconnected photoelectric smoke alarms must meet the Australian Standard AS3786–2014 and be installed according to the following dates: What are my obligations as a landlord? Landlords must ensure interconnected smoke alarms are installed and compliant with the new Queensland government requirements by 31st December 2021. Smoke alarms should display the code ‘AS3786–2014’ on the body of the smoke alarm and they can be sourced from hardware stores, electrical retailers or obtained through qualified electricians. Landlords must ensure smoke alarms are placed on the ceiling (where possible) and installed throughout the property as advised above. They must also ensure each smoke alarm has been tested and cleaned within thirty days prior to the commencement of any new lease. This includes renewal or existing tenancy agreement extensions. What are the obligations of a tenant? Tenants must test and clean each smoke alarm at least once a year. This may involve referring to smoke alarm manufacturer instructions where a ‘test’ button on the device may not be visible. Regarding the cleaning of a smoke alarm, this will usually involve vacuuming the device. Why comply? Ensuring your property and the people with it are protected is paramount. Complying with the rules and regulations surrounding the type and installation of smoke alarms will also ensure you can continue to lease and/or sell your investment property and avoid non-compliance penalties. Acting now will ensure you can secure the services of an electrician to install any smoke alarms required. With the looming deadline and approximately 450,000 Queensland rental properties requiring smoke detector installation, it is likely that demand and costs will increase. BMT staff can assist you in reviewing your current circumstances and provide a tax depreciation schedule that includes forecast of eligible claims for depreciable assets and structures. To learn more speak with one of our expert team on 1300 728 726 or Request a Quote online. Smoke alarm rules vary across Australian states and territories Landlords interested in obtaining more information on smoke alarm legislation across Australia can visit Australian smoke alarms regulations and rules for landlords.

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How do I choose a Real Estate Agent?

BMT team — Wed, 21 Nov 2018 05:52:55 +0000

Choosing the right Real Estate Agent to sell your property or buy an investment property can be daunting. When selling, you want to know that your home is in good hands and well placed to fetch an attractive sale price in the current market. Buyers want to find a trusted and reputable Agent who will transparently help them to grow their property portfolio. While we can’t tell you exactly which Agent to choose, here are some things you should look out for when choosing a Real Estate Agent to buy or sell property. Local knowledge Knowledge of the local area is a major advantage for Agents when selling property to potential buyers. Agents should have the necessary knowledge to answer potential buyer’s questions about the area and be able to add value to the property by talking about its proximity to local facilities. Buyers will feel much more comfortable buying a property from an Agent who knows the area and can talk about local schools, hospitals, shops and other facilities. If a buyer is new to the area, they will want to be reassured that the property and its location are a good fit for their lifestyle and will cater to their needs. It is important that Agents can confidently sell both your property and the suburb in which it lies. If you’re looking to buy an investment property, choosing an Agent with good local knowledge will be a huge advantage when it comes to finding a suitable property with good growth potential. Flexibility Selling property is an involved process and Agents need to have enough time to dedicate to the sale of your property. Agents can quickly find themselves run off their feet managing multiple property sales and vendor relationships. If an Agent is not contactable or is too busy to meet, this will not only cause frustration for yourself, but it can be a major deterrent for potential buyers. Remember, if an Agent is not contactable at this stage when they should be trying to win your business, there is little chance that they will be able to competently manage the sale of your property. It is crucial that Agents can work around busy schedules and conduct open homes at convenient times for buyers. Buyers also expect Agents to dedicate time to them to answer any questions they have about the property, so they will need to be available for the buyer. If you are choosing a Real Estate Agent to purchase an investment property, it’s important that you look for an Agent who is flexible and can work around you. Are they depreciation savvy? For buyers looking to purchase an investment property, depreciation is a major drawcard. Depreciation makes owning an investment property much more affordable due to the tax benefits. This means that a depreciation savvy Real Estate Agent will be able to use depreciation as a selling point to investor buyers. Agents can use BMT Tax Depreciation’s online depreciation calculator to provide potential buyers with an estimate of the likely deductions they would receive should they purchase the property. If you’re selling your property, this may be the incentive a buyer needs to make an offer. You should carefully choose a Real Estate Agent who is able to add value for buyers, has the necessary local knowledge to answer buyers’ questions and can dedicate time to ensuring your property buying or selling experience is a positive one.

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Shining the investor spotlight on Flemington, VIC

BMT team — Mon, 05 Nov 2018 05:35:34 +0000

As Melbourne Cup fever sweeps across the country, what better time to take a closer look at the suburb of Flemington VIC and its property investment opportunities. Home to the race that stops the nation, Flemington is a trendy inner city suburb of Melbourne located just a few kilometres outside of the city centre. It has a vibrant night life and a distinct multicultural flavour, with local restaurant Laksa King topping lists as a Melbourne favourite. The property landscape in Flemington was traditionally made up of older houses, terraces and small unit blocks. However, there has been a surge of new unit developments recently such as ONLY Flemington, an ultra-modern apartment complex with 400 one and two-bedroom apartments. BMT Tax Depreciation prepared tax depreciation schedules for close to 100 investors who purchased an investment property in the ONLY complex. Based on our estimate, the average three-bedroom apartment attracted a depreciation deduction of $17,155 in the first year alone. Owners of two-bedroom apartments were able to claim an average of $14,647 in the first full financial year. Over the past two years, both residential and commercial investors in Flemington have engaged BMT to obtain tax depreciation schedules for their investment properties. Of these, 84.5 per cent of properties were units, 8.5 per cent were houses, 4.7 per cent were townhouses and 2.3 per cent were offices and retail premises. Investing in Flemington Flemington has a population just topping 7,500, with most residents being young professionals. Due to its proximity to Melbourne’s CBD, Flemington VIC is a desirable location for workers wanting to avoid a long commute to the city centre. The mix of location, demographics and culture make Flemington an attractive investment location. View Flemington’s suburb profile here. Let’s take a look at the depreciation deductions investors are entitled to based on the average purchase price of a unit and three-bedroom house in Flemington. The depreciation deductions in this scenario have been calculated using the diminishing value method. The second hand, three-bedroom house is affected by the 2017 budget changes. Based on the figures in the above table, we can see that the owner of a brand new two-bedroom unit with a purchase price of $490,000 can claim $12,764 in depreciation in the first full financial year alone. This adds up to an impressive $55,501 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 Flemington, purchased in January 2018 with a purchase price of $1,105,000. In the first financial year, the owner can claim $6,850 in depreciation. Over the first five years, this figure increases to $34,250. Considering investors can claim depreciation deductions over the life of the property (40 years), you can see how it can dramatically improve an 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. View the latest Flemington real estate here. View our previous Melbourne Cup Day related posts. The only sure money on Melbourne Cup day How to be a winner in property and beat the Melbourne Cup odds Do you dream of being a Melbourne Cup winner?

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Property market update – October 2018

BMT team — Tue, 30 Oct 2018 22:20:12 +0000

Property values The Australian property market has continued to weaken, with national housing prices falling half a per cent in September. This fall in market values has been consistent over the past twelve months according to the latest CoreLogic Home Value Index. Sydney house values have dropped 6.1 per cent over the past twelve months and Melbourne values are sitting 3.4 per cent lower. Not only are these amongst the largest annual falls across the Australian capital cities, but considering Sydney and Melbourne include approximately 60 per cent of the national value of housing, the shaky conditions in these cities continue to have a substantial impaction the overall national housing market. As national housing market conditions have slowed down, and credit seems to be less available, buyer numbers have thinned out. CoreLogic estimates of settled sales are down 10 per cent year on year nationally, whilst previously strong markets such as Sydney and Melbourne have seen the number of settled sales fall more substantially, down 19 per cent and 16 per cent respectively. There are more positive signs elsewhere across the country, with Brisbane, Adelaide, Hobart and Canberra showing signs that property prices are indeed increasing. With a change of Government possible in the near future, and Labor intending to change negative gearing policy, this could have a huge impact on pricing, particularly in Melbourne and Sydney. Residential listings New listings have commenced their anticipated seasonal rise thanks to the onset of spring and warmer weather leading into summer. However, the number of freshly advertised properties remains well below that of previous years. Despite the decrease in new listings, the total number of properties available for sale has climbed 9.5 per cent compared to one year ago across the combined capital cities. This wave in total listing numbers is highest in Sydney and Melbourne, where levels are now 22 per cent and 17 per cent higher than twelve months ago. A study conducted by analyst and buyer’s agency firm Propertyology revealed that Sydney and Melbourne markets continue to see housing oversupply, which is likely to cause slowdown in areas located in two of the major capitals. The oversupply has been driven by dropping property prices, increasing vacancy rates and easing rents. Vacancy and rental rates With capital city property values falling, rents continued to rise, despite gross rental yields gradually recovering from recent record lows. Whilst there has been a fall in properties available for rent, the most recent figures compiled by CoreLogic show the national gross rental yield at 3.73 per cent, lower than the decade average of 4.27 per cent. Nationally it is 4.2 per cent for apartments, and 3.6 per cent for houses. Recent figures from SQM Research indicate that the national vacancy rate remained steady at 2.1 per cent. Half of the capital cities saw their vacancy rates shrink by 0.1 of a percentage point, with the tightest being Hobart at 0.4 of a percentage point, followed by Canberra at 0.6 of a percentage point, Adelaide at 1.1 per cent and Perth at 3.6 per cent. Similarly, the capital city average asking rent for houses remained steady at $552 a week, but unit rents declined by 0.7 of a percentage point to $437 a week. The major growth standouts for rents were Adelaide and Perth, which saw both asking rents for houses and units rise. Adelaide’s asking rent rose by 0.5 of a percentage point for houses to $390 a week and by 0.3 of a percentage point for units to $300 a week. Meanwhile, Perth saw a more subdued rise of 0.3 of a percentage point for houses to $425 a week and by 0.1 of a percentage point for units at $320 a week. On the flipside, the capital cities that saw asking rents for both houses and units decline were Melbourne, which saw declines of 0.5 of a percentage point and 0.7 of a percentage point to $525 a week and $405 a week respectively, and Darwin, which saw declines of 2.0 per cent to $505 a week and $400 a week respectively. Auction clearance rates According to CoreLogic, the combined capital city auction clearance rates numbers have steadied over recent weeks, but they remain well below levels from a year ago. Across Melbourne, auction volumes rose. However, final figures saw the clearance rate drop to 45.7 per cent. This was not only lower week-on-week, but it was also the lowest figure since June 2012 (38.6 per cent). Over the week prior, fewer Melbourne homes were taken to market with a final clearance rate of 50.4 per cent. In Sydney, the final auction clearance rate fell slightly to 44.6 per cent last week, from 45.1 per cent the previous week. Across the smaller auction markets, clearance rates improved in Adelaide, Brisbane and Perth, while Canberra’s came in lower week-on-week. Building approvals Both house and unit building approvals are currently trending lower nationally. However, they do remain well above previous average levels. Finance and interest rates Mortgage demand is trending lower, largely due to an extensive decrease in investment lending. Previous housing cycles have generally been prompted by changes in interest rates, the current slowdown has been deeply influenced by changes in credit availability. Mortgage rates creeped higher in September, with the average discounted rate for owner occupiers rising from 4.50 per cent to 4.55 per cent. Some good news is that first home buyers are back, with finance approvals to this group well up compared to the same time last year. While a relatively small buyer group, the combination of renewed first home buyer Government incentives, fewer investors and calmer prices has been a positive. This is particularly the case in Sydney where there are the greatest number of first home buyer finance approvals in almost a decade.

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How to double the power of your deposit

Simon Pressley — Wed, 27 Jun 2018 04:31:43 +0000

In modern Australia, the housing affordability musings attract more newspaper column inches than a royal wedding. For most, the biggest challenge isn’t being able to afford the mortgage repayments – it’s putting together a deposit for the purchase. Let’s face it, if you’re trying to save a ten to twenty per cent deposit to buy a median-priced house ($1,033,892) or apartment ($878,325) in Sydney, you’ve got your work cut out for you. But for those who reside beyond the Harbour City or for those prepared to explore the increasingly popular rentvesting strategy, the opportunity to purchase a piece of Oz is there for those with an open mind. Property Investment Professionals of Australia (PIPA) recently pointed out that a detailed study of mortgages and incomes shows the average loan is more easily serviced now than it was thirty years ago. The problem isn’t affordability per se – Australia is littered with locations offering affordable housing – but rather accessibility, because the hurdle is putting together a deposit rather than paying back the lender. There’s a narrow, inaccurate and slightly offensive assumption by the broader media and political landscape that “the Australian property market” is a proxy term for Sydney real estate. Last time I checked, Sydney was a city, not a country! If you’re willing to break free of that misnomer, I can show you how to double the power of your deposit. Mindset The first important step in understanding the solution is to remember Australia consists of 10 million dwellings that are spread across 550 local councils, and the vast majority provide affordable real estate options to potential buyers. With our realistic view of Australia’s whole market now firmly front of mind, let’s run the figures and see how you can power up your savings and get into a property. According to the Australian Bureau of Statistics (ABS), Australia’s capital city average median dwelling price was $686,700 as at December 2017. A buyer would therefore need $68,700 for a 10 per cent deposit. Adopting the national median rent of $435 per week, the annual holding cost (after rent) on a typical property worth $686,700 with a 10 per cent deposit would be $13,100 per year – that’s before taxation or negative gearing benefits. This cash flow calculation assumes receipt of rental income for forty-eight weeks of the year, interest expenses calculated at 4.5 per cent, and other standard holding costs (property management fees, council rates, insurance, and $500 for general maintenance). The solution to double your deposit The simplest way to double your deposit is to buy a property that’s priced at half the capital city average dwelling price. That’s right – instead of laying down $70,000 as a deposit for a purchase of almost $700,000, try broadening your mind and seeking areas where a house price closer to $350,000 is the norm. Remember – the phrases ‘more expensive property’ and ‘capital city location’ don’t automatically translate into ‘better capital growth potential’. If you doubt this, ask yourself why property markets in Sydney and Melbourne both declining right now while Hobart is booming and parts of regional Australia are strengthening nicely. Buying an investment property worth $343,500 (half the capital city average house price) using your $68,700 deposit means you’ve fronted up 20 per cent straight away. The annual holding costs will now be significantly less at $850 per year, because you’re only borrowing 80 per cent from the lender. If saving up a deposit of $68,700 is too steep, how about halving your goal to $34,350 and using it as a 10 per cent deposit on a $343,500 purchase? The annual holding costs would be a very manageable $2,400. And, if you’ve purchased in a location with all the fundamentals in place for great long-term growth, the asset is working for you straight away. This means you’re in the market and enjoying the benefits sooner. The key takeaway from all this is that you shouldn’t stand back and struggle waiting to save up a deposit for an expensive property that will be more difficult to service and has no more, if not less, potential for capital gains than some non-Sydney investments. Instead, lower your buy in, look for smart locations and start reaping rewards sooner.

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Depreciation and off-the-plan properties

BMT team — Mon, 18 Jun 2018 04:24:29 +0000

Investors who are looking to purchase a new property often look at buying off-the plan. Buying off-the-plan essentially means you are entering into a contract to purchase a property prior to, or during the construction phase of a property or a development. One big benefit of purchasing off-the-plan that investors often fail to consider is the property depreciation benefits available. There are significant depreciation deductions available to the owner of a property purchased off-the-plan. It is important to note however that the property must be completed and be generating an income to claim depreciation deductions. A completed property purchased off-the-plan will typically attract between $8,000 and $14,000 in depreciation deductions in the first full financial year, so it is fair to say that the new owner can make significant savings and increase their available cash flow by claiming depreciation for the property once it is income producing. Newly built properties constructed off-the-plan will contain new fixtures and fittings*. Therefore the depreciable value of these items will be higher. The owners are also eligible to claim the maximum capital works deductions for the building structure, which means more deductions are available to claim over the life of the property (forty years). When it comes to the fixtures and fittings in an off-the-plan property, investors should be aware that not all assets are created equal. In most cases, those assets with a higher starting cost will generate higher depreciation deductions. For this reason, investors may want to consider the brand and price range of assets in an off-the-plan property. Focusing on a kitchen in an off-the-plan property, the below table illustrates how the depreciation deductions available will vary depending on the model or price range. As you can see, those assets with a higher starting cost generate higher deductions than those with a lower base cost, both in the first full financial year and over the first five years combined. As one example, a high range oven costing $5,150 will receive $858.51 in first year deductions and $3,080.74 in the first five years, while a low range oven purchased for $1,425 will get $237.55 in first year deductions and $1,183.42 over the first five years. This is a difference of $1,897.32 in the first five years. If this is the difference an investor can see from just one asset, it’s understandable why they would want to give due thought to all the plant and equipment assets installed, as they add up to substantial depreciation differences. Please note that the low-range microwave oven purchased for $220 would receive a 100 per cent write-off in the first year. It is recommended that investors consult with their Accountant to seek advice when purchasing a property off-the-plan and also speak with a reputable Quantity Surveyor to get an estimate of the likely depreciation deductions available for the property. A specialist Quantity Surveyor such as BMT Tax Depreciation will liaise with the Property Developer to request information about the property. This information is used to provide a detailed estimate of the depreciation deductions that will become available once the property has been completed and is income producing. By obtaining this information, the owner will have a far more comprehensive idea of the end cost involved in holding the property. The additional cash flow created from a depreciation claim can be put towards future loan repayments or to help save for future investment property purchases. * Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand new property will still be able to claim depreciation as they were previously. To learn more visit bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at bmtqs.com.au/2017-budget-whitepaper

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