Apartments are now the favoured asset choice for investors in Australia as they generally offer higher rental returns compared to traditional homes.
Blogger: Paul Bennion, DEPPRO tax depreciation specialists
The latest figures from Australian Property Monitors show that rental returns for apartments and units are now higher in many capital cities compared to houses.
In Sydney, for example, rental returns for apartments are now 5.19% compared to 4.65% for houses while in rental returns for apartments are 5.77% compared to 5.27% for houses.
The largest differential for rental returns is in Darwin where the annual returns for apartments are 6.22% compared to 5.20% for houses.
These higher returns for apartments and units are a major reason why over 40% of the tax depreciation reports undertaken by DEPPRO are property investors buying these higher density homes compared to traditional houses.
In addition to higher rental returns, apartments and units are also favoured by investors because of low maintenance costs and the fact that family sizes are getting smaller.
Historically there is frenzy amongst property buyers wanting to purchase apartments in the period leading up to and after the start of the new financial year.
It is significant that more than 70% of the property depreciation reports which DEPPRO prepares for apartments are during the months from April to September.
Anyone who is considering buying an apartment for investment purposes should therefore consider making a decision now rather than waiting until activity in this sector of the property market increases later in the year.
Many of the deprecation reports we prepare for clients who purchase an apartment are completed to maximize their tax benefits in line with the start of a new financial year.
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 tax payer 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% 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 of the property.
Even an older style apartment can also qualify for substantial tax depreciation benefits if a depreciation schedule is undertaken.