VACANCY RATES REMAIN STUBBORNLY BELOW AVERAGE
Rental conditions remain diverse across the nation, but there is growing evidence that rental growth is easing, according to CoreLogic. The national rental index increased a further 0.7% in June, still well above the pre-COVID decade average of 0.2% month-on-month, but a continued deceleration and the smallest monthly rise since January 2023.
The annual growth trend in rents was recorded at 11.5% across the combined capital cities, down from a record high of 11.7% over the 12 months ending April 2023. Across the combined regional areas of Australia annual rental growth has slowed to 4.9%, following the record high of 12.5% over the year to September 2021.
The slowdown in rental appreciation can be seen in most cities and regional markets to different extents. Canberra is the only capital to record a fall in rents over the past 12 months, down -2.8%, while declines in Hobart rents over the past two months have dragged the annual trend to just 1.3%. Both these markets have seen a loosening in supply and increase in vacancy rates. Although easing, the larger capitals continue to record stronger rental appreciation, especially across unit markets, where overseas migration and insufficient rental supply is continuing to place upwards pressure on rents.
Rental vacancy rates have generally ticked a little higher over recent months, but remain well below average levels. Higher vacancy rates are most evident across regional Australia, rising from 1.3% in February 2022 to 1.5% in June, however, even at 1.5%, the current rate is less than half the decade average of 3.3%. Vacancy rates across the combined capitals have risen from 1.0% earlier this year to 1.1%, but are holding well below the decade average of 2.8%.
Some cities haven’t seen any signs of vacancy rates easing. Adelaide is recording the lowest vacancy rate at 0.4%, up slightly from 0.3% in early 2022. Perth’s vacancy rate is holding at 0.7% and Melbourne’s is sitting at just 0.8%.
Despite such tight vacancy rates, it’s likely the trend in rental appreciation will continue to moderate, simply due to rental affordability pressures forcing a change in rental household formation. The early signs of a rebound in the average household size can already be seen in data published by the RBA.
Values increase in June, but at slower rate
Australian housing values moved through a fourth month of recovery with CoreLogic’s national Home Value Index (HVI) rising 1.1% in June, decelerating slightly from the 1.2% gain recorded in May.
Since finding a floor in February, the national measure of housing values has gained 3.4%, however, the market remains -6.0% below peak levels recorded in April 2022. That is the equivalent of the median dwelling value still being -$45,771 below a peak of $768,777.
Every capital city except Hobart (-0.3%) saw dwelling values rise in June, with CoreLogic’s research director, Tim Lawless, noting that Sydney continues to lead the cycle.
“Sydney home values increased another 1.7% in June, taking the cumulative recovery since the January trough to 6.7%. In dollar terms, Sydney’s median housing values are rising by roughly $4,262 a week,” he said.
A lack of available supply continues to be the main factor keeping upwards pressure on housing values, Mr Lawless said. “Through June, the flow of new capital city listings was nearly -10% below the previous five-year average and total inventory levels are more than a quarter below average. Simultaneously, our June quarter estimate of capital city sales has increased to be 2.1% above the previous five-year average.”
RENTAL PROPERTY MARKETING DONE RIGHT
In the competitive rental market, effectively advertising your property is vital. Here are four strategies to make your listing stand out and attract quality tenants.
1. High-Quality Photos: First impressions matter. Use professional photography to showcase your property's best features. Clear, well-lit photos that capture the essence of your home significantly improve appeal.
2. Detailed Description: Make your property description as detailed and engaging as possible. Highlight unique features, recent upgrades, and the property's proximity to amenities like schools, parks, and shopping centres.
3. Use Multiple Platforms: Expand your reach by advertising on various platforms. Online listing sites, social media, local newspapers, and even community bulletin boards can be effective channels.
4. Open House and Viewings: Schedule regular open houses and private viewings. This provides potential tenants with an opportunity to visualise themselves living in the space.
Remember, professional property marketing not only helps to attract potential tenants but also decreases the time your property spends vacant.
SHOULD YOU GET A TAX DEPRECIATION REPORT?
Owning an investment property in Australia presents a host of opportunities for tax benefits, but many owners inadvertently leave money on the table.
A critical, often overlooked tool is the tax depreciation report. Now that you’re preparing your taxation details, it is the perfect time to understand the importance of this document and how it could potentially enhance your bottom line.
In essence, a tax depreciation report provides an accurate summary of the capital allowances and tax depreciation deductions available for a specific investment property. Prepared by a quantity surveyor, the report details the decline in value of the building's structure, fixtures, and fittings over time, and can significantly reduce your taxable income. Here are some advantages:
1. Maximise Tax Deductions
Each financial year, the Australian Tax Office (ATO) allows property investors to claim depreciation on both the property's building and the assets within it. These deductions account for the natural wear and tear of the property over time. The deductions vary depending on the property's age, type, and the assets it contains. A tax depreciation report ensures that you're claiming the maximum possible depreciation each year.
2. It's a Deductible Expense
Engaging a professional quantity surveyor to prepare a tax depreciation report comes with an initial cost. However, the good news is that the ATO recognises this cost as a fully deductible expense in the year it is incurred. This means the report not only helps you save money by maximising your depreciation claims, it also costs you nothing in the long term.
3. Valid for Many Years
Typically, a tax depreciation report provides a detailed schedule of deductions for up to 40 years. This means that a one-time investment in a quality report will benefit you for many years, ensuring you optimise your deductions throughout the lifetime of your investment.
4. Benefits Both New and Old Properties
While it's true that newer properties generally offer higher depreciation benefits due to the higher initial cost of building structures and assets, older properties can also yield significant deductions. Even if your property was built several decades ago, it's still worth getting a tax depreciation report. Upgrades, renovations, or simply the fixtures and fittings within the property can all be depreciated.
5. Depreciation Reports and Property Improvements
If you make improvements or renovations to your property, a new tax depreciation report can account for these changes and possibly increase your tax deductions. The report can capture the depreciating value of any new fixtures, fittings, or structural improvements, providing an accurate reflection of your updated investment.
6. Evidence for ATO
A comprehensive tax depreciation report provides a clear, detailed record of your depreciation claims, which is invaluable if the ATO queries your tax return. It serves as a concrete document that substantiates your depreciation claims, thereby giving you peace of mind.
In conclusion, a tax depreciation report is an indispensable tool for Australian property investors, helping maximise tax deductions and solidify the financial benefits of property investment. As you prepare your return, consider this valuable asset. The small initial outlay pales in comparison to the potential long-term savings, making it an investment well worth considering. To ensure you gain the maximum benefits, engage with a reputable quantity surveyor who has expertise in property tax depreciation. They'll tailor the report to your specific situation, optimising your deductions and ensuring you comply with all ATO regulations.