The Sydney investors' guide to the new depreciation rules
The Federal Government has investment property square in its sights. Under a proposal from the 2017 Budget, property investors may not be able to claim depreciation on any assets that they didn't install brand new. Buying a home after someone owned it for a week? You won't be eligible.
The idea here is to push buyers towards brand new investment property in Sydney, driving up demand for construction and freeing up existing housing stock for first home buyers. And while the immediate reaction has been one of despair, I think smart investors know the depreciation changes don't change that much.
How to work with the new depreciation proposal
If the depreciation changes come into effect, investors need to remember one important question: Does it really matter?
Depreciation is an excellent icing on the financial cake for Sydney investment property, but it shouldn't be something house hunters base their entire purchase around. You need to be looking at property that has strong positive cashflow, healthy capital gains, and is something that people actually want to live in.
That means factoring in location, proximity to amenities and transport, whether it's zoned for a good school - these are factors that can bring much greater long-term windfall than what you can claim through depreciation. New properties will have faster depreciation, certainly - but that doesn't mean they're a better investment overall.
Risks with depreciation updates
This drive towards new properties also introduces some risks for investors that maybe weren't as prevalent before. For one, any tax change to incentivise new developments is going to catalyse more spruikers. These are promoters of investment schemes who often arrange finance, broking and insurance as part of one large package - NSW Fair Trading is consistently cracking down on spruikers who are misleading buyers.
This is not to say the government has created a new wave of spruikers - but they are a risk anytime someone looks to buy into a new development. The key here, as always, is to seek independent and authorised financial advice.
Another way to make sure your property purchases fit within your financial plan is to use a buyers' agent. We provide full profiles on Sydney investment properties that suit you, and can focus on the long-term benefits of a home - not just whether it qualifies for depreciation.
When you want to build wealth for decades to come rather than focus on short-term tax breaks, we'll find you what you need. Talk to the team at Propertybuyer for more information.