Property investors will almost always come out on top, even if they've bought in a market that's suffered a setback – here's why.
The latest national CPI figures for the country's capital cities show that the annual inflation rate was 1.5 per cent during the year ending June 2015.
In comparison, combined capital city home prices during the same period increased by a whopping 10.2 per cent or around seven times the annual inflation rate.
While Sydney and Melbourne accounted for a large part of this annual increase in property values over the past year, it is worthwhile remembering that over the long term, property values have increased at a much faster rate than inflation even for capital cities where house price growth is more subdued.
Take Perth, for example, where the median house price actually fell over the past year by 1.8 per cent.
However, since 1965, property prices have advanced well ahead of the inflation rate.
Over the past 50 years, the consumer inflation in Perth has increased by elevenfold – well below the huge increase in property prices over that period.
Currently, the median house price in Perth is around $525,000. However, if house prices in Perth had kept track with inflation, you could buy a place in Perth for a little more than $120,000.
Instead, you have to pay more than four times that for homes on blocks of land that are much smaller.
Taking into account the changed make-up of the city's population, collective religious beliefs and our education, the cost of buying a house is perhaps the single biggest change to take place in Perth over the past 50 years.
These figures are important for property investors because one of the key reasons why many people decide to invest in real estate is to protect themselves against the impact of inflation and to build personal wealth over the longer term.
Astute property investors can build a successful property portfolio at a much faster rate if they fully claim all their allowable tax benefits and, in particular, those related to depreciation, which can be substantial.
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.
Depreciation is a complex area of taxation that requires a professional company to undertake a depreciation report because of constant changes in rules.
The ATO is now taking a more aggressive approach to tax deductions made by residential investors and has asked a large number to provide more details about their claims relating to property investments.
Property investors should check that the company undertaking their tax depreciation schedule is a member of the The Australian Institute of Quantity Surveyors (AIQS).
Employing a company that is a member of AIQS, such as DEPPRO, gives protection to consumers that their tax depreciation report is completed in a professional manner.
Paul Bennion
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.
