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Depreciation data highlights investment trends

Insight into the properties Australian investors target

Key statistics gathered from hundreds and thousands of residential BMT Tax Depreciation Schedules has highlighted that the majority of investors are buying and requesting a report for just one property.

There is a plethora of data available to help educate property investors with their investment strategy.

Given the value that research can provide to potential investors, we thought we’d look at some of the key statistics we could gather from the hundreds of thousands of residential BMT Tax Depreciation Schedules we have completed for our clients. What we discovered as a picture of the average Australian investor was quite interesting.

The majority of investors who contacted BMT to arrange a depreciation schedule during the 2015/2016 financial year, 83.64 per cent, ordered a report for one property.

This suggests many Australians are successfully taking their first steps in entering the property market, but the vast majority are buying one property.

The data also suggests that approximately 17.2 per cent of investors are expanding their property portfolios to two or more properties. In fact 11.35 per cent of schedule requests came from owners with two properties, 3.85 per cent of schedule requests were from owners with three or four properties and less than 2 per cent own five or more properties.

It is important to note that each time an investor calls BMT we will discuss the depreciation potential for all of the properties they own.

Data for the 2015/2016 financial year indicates that investors tend to favour houses. Just over half of the schedules prepared were for houses. Units were the second most popular investment choice, at 42 per cent, while only 6.08 per cent chose townhouses and 1.75 per cent chose duplexes.

We also reviewed the age of the properties we prepared residential depreciation schedules for during the past financial year. It was interesting to note that investors were fairly evenly split between purchasing brand new, recently built (properties constructed between 2012 and 2015), properties that are around fifteen years old and those who own older properties constructed prior to 2000 and 1987.

The following table outlines the percentage of residential property investors who requested schedules based on the below construction dates.

Age of residential properties selected - 2015/2016 financial year
Description Construction dates % of total Avg. first full year deduction
Old Pre 1987 22.3% $4,899
Pre 2000 1987 - 2000
16.9% $7,543
Up to 15 years old 2000 - end 2012 26.0% $11,303
Fairly new 2012 - 2015 13.3% $12,316
Brand new Built after 1/3/2015 21.5% $12,680

Assumptions and disclaimer

The depreciation deductions in this example have been calculated using the diminishing value method.

Our property investor clients often ask the question whether it is best to purchase an old or new property in terms of the depreciation benefits the property will provide the owner.

Even the owner of a property constructed prior to 1987 can receive an average depreciation deduction of $4,899 in the first full financial year alone.

While owners of brand new properties will receive higher depreciation deductions, as shown by the average deduction of $12,680 in the first full financial year, it is always worthwhile asking a specialist Quantity Surveyor what can be claimed no matter how old a property is.

Owners of newly constructed properties are entitled to claim capital works deductions for the full forty years, while owners of older properties where construction commenced after the 15th of September 1987 can claim capital works deductions each year for the remaining forty years.

The owner of a property constructed prior to 1987 can receive an average first year deduction of $4,899.

Although the Australian Taxation Office places restrictions on capital works deductions based on the construction commencement date of the property, there are no such restrictions for plant and equipment assets. Their value is determined by the condition, age and quality of each asset. A fair value is determined for these assets and the effective life will start from the date of settlement.

In summary, the key findings from our data suggest that the majority of Australian property investors own just one property and not large portfolios. We can also see that 78.5 per cent are buying second hand properties, up from 70.4 per cent in the previous financial year.

The data also provides a reminder for investors to discuss the depreciation deductions they can claim for any property purchase. These deductions can be substantial no matter what age the building is and whether it is a house, a unit, a townhouse or a duplex.