Avoid financial year buying frenzy, investors told

Anyone considering buying an apartment should bring forward their plans and make the purchase before the start of the new financial year.

This is the advice being given by Paul Bennion, managing director of DEPPRO depreciation specialists. We asked him to explain why.

Bennion says his company finds there is traditionally a frenzy among investors to purchase apartments in the period leading up to and after the start of the new financial year because this is when people become more focused on using property to reduce their tax burden.

"Up to 70 per cent of the property depreciation reports which our company prepares are during the months from May to September," he says.

"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 (things) being equal.

"Buying a new apartment, for example, can provide a taxpayer with considerable depreciation benefits because of the significant tax benefits they offer through depreciation. With more buyers in the market at this time of year for this type of real estate, it therefore makes sense to purchase this type of property during a lower demand period and more choice."

Bennion says some investors are able to achieve tax benefits through depreciation equivalent to 60 per cent of the total purchase price of the property.

"In some cases these tax benefits can total $240,000 based on a purchase price of $400,000," he says.

"In particular, our company is also finding that there is a strong demand for new apartments amongst property buyers in Perth because, unlike other major capital cities where we undertake property depreciation reports, there has not been the same oversupply of apartments in Perth compared to areas such as Sydney.

"DEPPRO is also finding that a growing number of our clients who have purchased inner city apartments in Perth are located in the eastern states and they have decided to purchase an apartment in the inner city area of Perth because they view the apartment market in Perth as relatively undervalued," he says.

14th April 2006

Source: API