Sydney Waking From Real Estate Slumber

The Sydney housing real estate market is showing signs of increased buyer interest and price growth, according to the property analyst CPM Research.

Sydney was demonstrating a litany of positive signs, CPM managing director John Wakefield said. He cited five signs of life from the Sydney property market:

1. The number of listing climbed to more than 1600 in March, the highest since the end of 2003.
2. In the same month, $926 million worth of property real estate changed hands, again a level not seen for more than three years.
3. On a month-to-month basis, the median house price in Sydney increased 34 pre cent to $791,000 during March (although on an annual basis there was still a fall of 7 per cent).
4. The median unit price was up 1 per cent in the year to March and jumped 21 per cent over the month.
5. Auction clearance rates hit 68 per cent in Sydney’s real estate market in March, the highest they have been since September 2003.

“It is early days but it appears that we may be enterting a new phase of price growth, pushing prices back to boom levels,” Wakefield said.

At the same time, the Real Estate Institute of New South wals (REINSW) said the residential vacancy rate in Sydney hit a record low of 1.2 per cent in March, with the inner city even lower at 1.1 per cent.

“The inner city seriously has the no vacancy sign up,” REINSW vice president Steve Martin said. “Tenants are too scared to move because finding something else would be too hard.” For some of the latest Australia presales apartment condominium towers in Sydney, Perth, Brisbane and Melbourne, visit here. They are also called 'off-the-plan' property developments as home buyers will purchase these homes in pre-construction phase.

When a home becomes a rental

Australia based information from the API published in Dec 2006 that includes a question and answer from real estate professionals regarding renting and rental properties.

Question
We purchased a house in Scarborough (Queensland) in September 2003 for $400,000 and lived in the house until December 2005 as our principal place of residence (PPOR). In the first 15 months (up to December 2004) we spent approximately $75,000 on replacement and renovations (windows, doors, plumbing, electrical, insulation, driveway, fence, landscaping, floor coverings, painting, roof etc.) and another $25,000 on the construction of a large timber deck.

We intend to keep this real estate property for the long term, although from January 2006 we moved and have been renting out this property. It will remain as an investment real estate property for the foreseeable future, although we may move back into this house in 10 years or so.

We intend to claim interest on the remaining $200,000 mortgage from January 2006 onwards and we’d also like to know if we can claim depreciation on all or some of these items starting from the 2005 -06 financial year and beyond.

1. Could you please confirm if it’s valid to claim interest and depreciation?
2. Assuming it’s okay to claim both, does depreciation of these items have to commence from the year the money is expended or can depreciation start, say, two years later (as per our scenario)?
3. If we haven’t kept receipts for all items, can we still claim if we engage a quantity surveyor for a full estimate of all the works?
4. Finally, we have a small (but growing) investment property portfolio and don’t really need to claim the depreciation at this stage. If we can and decide to claim these expenses over the next several years, will we end up just paying a larger capital gains tax (CGT) bill when we eventually sell the property in 10 or 15 year’s time?

Answer
Yes, it’s entirely valid for you to claim interest on the loan used to buy the Scarborough property and yes, you’re also legally entitled to claim the depreciation on the original property along with the renovations undertaken by you while you lived in the property. The depreciation starts at the time the item of plant or equipment is first installed ready for use. However, the claims on your tax start at the time the property is first available for rent.

A quantity surveyor will estimate the depreciation that you’re legally entitled to claim, and they’ll do this whether you have receipts or not. The depreciation should be claimed each year as you go and shouldn’t be ignored. If the depreciation triggers tax losses for you, those losses will carry forward to offset against future income and capital gains.

Claiming depreciation shouldn’t have much of an impact on the capital gain made on the sale of an investment property. By the way, when a home is converted to a real estate investment property, it’s vitally important for you to determine the current market value at the time of the change of the use. This is because, for CGT purposes, you’re deemed to have bought the house from yourself at its real estate market value at the time the house ceased to be your PPOR and became your investment real estate property. So, given that there may have been some growth in the value of your real estate property while you were living in it you can lock in some tax-free gains now by either: obtaining a sworn valuation or getting three real estate agents to give you an appraisal and then taking the average as the market value.

Dale Gatherum-Goss for API Magazine