Low interest rates over the last eighteen months are now beginning to have a major impact on the residential building sector with building construction now rising strongly throughout Australia.
Blogger: Paul Bennion, Managing Director, DEPPRO tax depreciation specialists
This trend is underlined by the latest ABS building approval figures for new dwellings.
They show that during the past year the past year, the number of new dwellings approved for construction has jumped by 25% throughout Australia.
The biggest growth was in higher density homes such as apartments with private sector dwellings –excluding houses – surging by 39.4%.
In Western Australia, for example, residential building approvals are now at a near record high with 21,227 private sector homes being approved last year which was just short of the all-time record year of 2006 when 21,367 new dwellings were approved.
Over the last year, property investors have helped the drive the demand for new housing especially higher density homes such as apartments. Low interest rates have encouraged many first time investors back into the property market and with interest rate set to remain steady for some time, this is only giving further confidence to investors to purchase more properties.
Rental returns are also high and with property prices rising, developers are therefore finding it much easier to sell new apartment developments off the plan to property investors.
This trend is reflected in the number of tax depreciation schedules undertaken by DEPPRO for investors buying new properties which overall has jumped by up to 30% in some areas of Australia.
In particular, DEPPRO is finding strong demand amongst first time investors for tax depreciation reports who have recently bought a new apartment.
However, it is unfortunate that many first time property investors who purchase apartments and units for investment purposes are still the most common group of investors who fail to obtain the full tax depreciation entitlements.
These first time investors fail to understand that the tax benefits from depreciation can be just as important as rental income. This is particularly the case with people buying an apartment because one year’s depreciation allowance could be equal to several years of rental income.
While there are many issues concerning the depreciation entitlements on properties, in most cases, strata style homes such as apartments provide a higher rate of depreciation than houses - all being equal.
Currently, there are a large number of new strata developments being sold to investors in Australia. Generally, owners of these strata style homes only depreciate the internal fixtures of the property without taking into account other items such as common property areas including car parking and recreational facilities.
Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.
For investors buying a new apartment this can equate to over $250,000 in possible tax benefits through depreciation. A large proportion of these tax benefits are never claimed which means that each year hundreds of millions of dollars in tax benefits are lost every year by investors not claiming their legitimate entitlements.