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Property and its ability to supercharge investors' fortunes continues to produce headlines and generate debate - but what role is it actually playing in our wealth creation?
Blogger: Paul Bennion, managing director, DEPPRO
The importance of property to personal wealth creation has been highlighted by the latest survey of household wealth produced by CoreLogic RP Data.
This survey shows that residential real estate accounts for more than half of all household wealth in Australia.
Value Investment Markets in Australia by total Value
Residential Property $6.0 Trillion
Superannuation $2.0 Trillion
Stock Market $1.5 Trillion
Commercial Property $0.7 Trillion
*Source CoreLogic RP Data
In fact, the value of the residential property market is four times larger than the stock market and three times more valuable than superannuation.
These figures underline why so many Australians prefer to invest in property as a way of creating long term personal wealth.
Residential property investment has proven to be a low risk form of investment for investors who take a long term approach to the real estate market.
The size of residential property market is huge with stakeholders ranging from mum and dad home owners to investors who own several properties.
This sheer size of the residential property market and its significance the overall Australian economy means that government is very sensitive to policy settings that might have a negative impact on it and this gives property investors a great deal of protection.
For example, issues such as abolishing negative gearing have been raised many times in recent years but Government has been reluctant to make any radical changes to the taxation system related to the property market because of concerns it may damage the overall economy.
Property investing still allows people to claim generous tax benefits associated with negative gearing as well as depreciation.
The tax benefits associated with tax depreciation can be very significant with some clients achieving tax benefits obtained through depreciation 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
Many investors in Australia totally underestimate the number of items that can be depreciated for tax purposes and this comprehensive list can even include garden gnomes, cubby houses and if they own an apartment, then common areas such as car parking and recreational facilities.
To qualify for these legitimate tax deductions, an investor must have a fully compliant tax depreciation company undertake an onsite inspection of the property and then compile a depreciation report based on this inspection.
Property investors should therefore check that the company undertaking their tax depreciation schedule is a member of the The Australian Institute of Quantity Surveyors (AIQS).
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.