13 Sep 2010
Property Investment : A Look at the Current Market
Are you a property investor eager to achieve the most out of your investment property? By claiming the maximum depreciation on a property, the property investor will generally have more income and the depreciation obtained can often turn a negative cash flow property into a positive one. The following article provides some statistics and reflection on the property market.
Statistics
The ATO publication “Taxation Statistics 2007-08” has identified some interesting facts about property investors and the rental deductions they are claiming. The following table identifies the number of individuals with an interest (solely owned, jointly owned or part-year owned) in an investment property:
| 2006-07 | 2007-08 | |
| Properties Owned | Number of Investors | Number of Investors |
| 1 | 1,118,260 | 1,206,627 |
| 2 | 281,944 | 303,359 |
| 3 | 85,193 | 91,698 |
| 4 | 31,227 | 33,552 |
| 5 | 12,740 | 13,765 |
| 6 or more | 13,348 | 14,580 |
| Total | 1,542,712 | 1,663,581 |
In 2007-08, Australians had a negative net rental income of $8.6 billion, including $32.7 billion in rental deductions.
This means that Australian property investors have claimed more rental deductions on their properties than they have received in rental income.
| 2006-07 | 2007-08 | |
| Rental income/deductions | $m | $m |
| Gross rental income | 20,911 | 24,120 |
| Less rental interest deductions | 16,104 | 20,228 |
| capital works deductions | 1,226 | 1,398 |
| other rental deductions | 9,953 | 11,123 |
| Total | -6,372 | -8,628 |
Interestingly, ATO figures also show that in 2007-08 only 617,938 claims were made for capital works deductions (total of $1.398 billion). This means that only 37% of investors are claiming the deduction, and in our experience, the majority of investors are not maximising their claim. While many investment property owners think that their properties are too old to claim the capital works deduction, it is always best to consult a tax depreciation specialist about your depreciation entitlements and can advise on qualifying dates and legislation to ensure you get the most from your rental deductions.
Property Market
While Australia faired reasonably well through the global financial crisis, there still remains some market uncertainty. Interest rates have increased, banks are being conservative with their lending, housing approvals are at low levels and the rental market continues to tighten.
There is still strong demand for housing throughout Australia; our population is still in a strong growth phase and due to government incentives over the past 12 months, first home buyers have reduced investment housing stock levels. This has strengthened demand.
The table below outlines year on year capital growth on Median house prices to June 2010. As can be seen all capital cities have experienced continued growth.
| City | Median Price** | % Change in index value, Year on year*** |
| Sydney | $512,000 | 10.4% |
| Melbourne | $470,000 | 16.0% |
| Brisbane | $445,000 | 4.5% |
| Adelaide | $390,000 | 9.1% |
| Perth | $475,000 | 5.1% |
| Darwin | $489,750 | 14.3% |
| Canberra | $495,000 | 10.6% |
| National | $465,000 | 10.5% |
| Hobart* | $320,000 | 3.9% |
*Hobart results are based on final May data** based on settled sales over quarter*** based on capital growth to June 2010. Source: RP Data
The current market situation has led to many industry experts suggesting that this is a good time for investors to increase their property portfolios.
If you intend to increase your property portfolio this financial year, don’t hesitate to get in contact with the team at Mortgage House Private Clients. Our panel of professionals can help you maximise your cash flow and reduce the tax you pay, as well as provide pre-purchase estimates on the likely depreciation deductions you will be entitled to.
Tax Agents
Recent changes to the Tax Agents Service Act has resulted in Quantity Surveyors needing to be registered as Tax Agents as they are seen to be giving tax advice through the production of tax depreciation and capital allowance reports.
The governing body of Quantity Surveyors (the Australian Institute of Quantity Surveyors – AIQS) has become a ‘Recognised Tax Agent Association’, enabling full members of the AIQS who have sufficient experience to gain their registration to become Tax Agents.
Mortgage House would like to thank BMT Quantity Surveyors for providing the information in this article.