An increase in demand for high-density living comes as a result of important demographic changes.
Blogger: Paul Bennion, managing director, DEPPRO
Australia is experiencing a boom in apartment building, which is highlighted by the latest ABS figures on new residential building approvals.
They show that during the last financial year, the value of building approvals for apartments topped $19.9 billion.
This was a jump of more than $4.4 billion compared with the previous financial year when the value of building approvals for apartments stood at $15.5 billion.
The surge in spending on new apartments has continued into the current financial year, with the value of building approvals averaging around $2 billion every month.
Property investors have been a major factor behind this surge in spending on apartments as they traditionally favour this asset class due to higher rental returns and lower maintenance costs compared with larger family homes.
In addition, there has been greater demand from renters for higher density homes due to important demographic changes, such as the increase in single family households.
DEPPRO has been finding that property investors throughout Australia have been capitalizing on this trend in greater numbers over recent years especially in the capital cites of Brisbane, Sydney and Melbourne.
The generous tax depreciation benefits associated with buying a new apartment has also been encouraging more investors to purchase apartments.
While there are many issues concerning the depreciation entitlements on properties, in most cases, strata-style homes such as new apartments provide a higher rate of depreciation than houses – all being equal.
Buying a new apartment, for example, can provide a taxpayer with considerable depreciation benefits because of the significant tax benefits they offer through depreciation.
Some DEPPRO clients are achieving that tax benefits obtained through depreciation can be equivalent to 60 per cent of the total purchase price of the property. In some cases, these tax benefits can total $300,000 based on a purchase price of $500,000.
A key part of ensuring that the investor obtains their full tax benefits is to have a professional depreciation professional prepare a comprehensive depreciation schedule. Even an older style apartment can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken for the property.
Top five investment tips for buying an apartment
- Location, location location. Pick an apartment where there is limited supply and a high demand for these homes in areas that have good levels of social infrastructure, ie within walking distance to public transport and other amenities.
- Before buying the apartment, check the average weekly rent for a similar apartment in the same location. This will give you an indication of future rental returns.
- Check how many apartments in the complex are owner-occupiers. Owner-occupiers tend to take a much more active interest in the upkeep of the complex. If more than 50 per cent of the apartments are owned by owner-occupiers then the complex should be well maintained.
- Check the exact internal floor space of the apartment. The price of the apartment should be measured in the cost per square metre and this will give you a good comparison to similar apartments in the same area.
- The views that the apartment can offer is important. If you are buying an apartment with good views, check that nothing in the future will interfere with these views, ie the construction of a new building in front of your apartment.
About the Blogger
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.