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Cash Flow or Gearing? Growth or yield? Understanding Property Investment Terminology

Daniel Chadrawy on May 19, 2022

When it comes to property investment, questions like, “Which is better, positive vs negative gearing?” or “Should I go for yield or growth?” is kind of like asking, “Which is better, a hammer or a screwdriver if I want to mow the windows?”

Firstly, let’s start with understanding gearing.

Put simply, ‘Gearing’ means using borrowed funds. Investors typically ‘gear’ their investment properties because buying property for cash is really, really, really hard for ordinary Australians – even for those on incomes well above average.

If you know anyone with a mortgage, they have used gearing. If the property is their home, the gearing has no tax implications. If the property is an investment, the gearing will have tax implications.

So why use borrowed money or ‘gearing’ to buy a property? Why not just save up the money required and pay cash?

Imagine a 100m race between a bicycle and a Tesla. The bicycle represents the speed at which most Australians can genuinely save money and the Tesla is the increasing purchase price of an average property in the Australian market. Unless the Tesla has its wheels removed, the bicycle doesn’t stand a chance. And so it is with the ability for most Australians to save money quicker than property prices are rising. The majority of property buyers need a super quick injection of funding (borrowed money) to complete the purchase or they will never catch the market.

So now we know what gearing is, what is all the talk about positive and negative gearing? Is one better than the other and which is best for you?

So, What Is Negative Gearing?

Let’s apply a basic bookkeeping idea – debits on the left and credits on the right.

In simple terms, an investment property is negatively geared when the debits (you could also call them costs or expenses including interest, maintenance, insurance, strata, council rates and depreciation) are bigger than the credits (usually called rent or rental income). That is, more money is going out per year than is coming in.

Just like with any business, when more money is going out than is coming in, the business is making a loss. The difference when it comes to personal property investment, however, is what can the loss be used for and what does the ATO permit on your personal tax return.

So, in this case, the ATO will permit the property investment loss to be deducted from the annual income of the investor *YES!!

Let’s explore further using basic numbers – Meet Billy!

Billy is a worker in a local factory. He earns $100,000 annually for this job.

His investment property has a rental income of $20,000 and expenses of $30,000 for the financial year therefore Bill’s investment property makes a $10,000 loss. The $10,000 loss is then able to be deducted from Bill’s factory wage.

So, Bill will pay tax on $90,000 income not $100,000.

Benefits of Negatively Geared Property Investment

Capital Growth

Properties purchased for negative gearing outcomes generally show great potential for capital growth, with the end goal being impressive gains received upon the sale of the home.

As long as the property shows high potential for future growth and quality research has been carried out to prove this, capital gains should outweigh any losses incurred by a long shot.

Long Term Tenants

Properties with the potential to successfully negatively gear are often located in areas with low rent and high vacancy rates. Finding long term tenants in these kinds of areas isn’t usually too difficult, so if you find a good renter, they may be with you for the entire life cycle of the property which is a huge plus and means less stress for you, as the property investor.

Drawbacks of Negative Gearing

Potential For Negative Cash Flow

When purchasing a negatively geared investment property, it is advisable to ensure you have a stable income that is likely to increase over time. By ensuring this, you can cover any property expenses that may be incurred where rental income doesn’t cover.

Capital Gains Attract Tax

Keep in mind that 50% of your capital gains will attract tax. It’s important to take this into account when considering a property purchase based on negative gearing.

What is Positive Gearing?

You’ll often find positively geared investments referred to as cash flow positive properties.

A positively geared investment is entered into with the understanding that the property will attract high rental income and produce more cash flow from tenants throughout the life span of the ownership.

Essentially, the positive cash flow from rental income on these types of investment properties is expected to cover property prices and fees, while generating passive income for the homeowner.

Think of a property located close to a city where vacancy rates are low.

This may put you in a position to charge $600 per week in rent. Say the overall costs of owning the property average out to be around $550 per week.

This means your property investing strategy is immediately paying off, leaving you with a net return on investment of $50 per week.

And while your ‘business’ is making a profit, we need to consider the ATO’s rules to complete the picture. For a positively geared property, the ATO will add the investment ‘profit’ to the investors existing taxable income.

Now, meet Mary!

Just like Billy, Mary also earns $100,000 working in a local office.

Her investment property has a rental income of $30,000 and expenses of $20,000 for the financial year therefore Mary’s investment property makes a $10,000 profit. The $10,000 profit (considered taxable income) is then assessed in addition to Mary’s factory wage.

So, Mary will pay tax on $110,000 not $100,000.

How Does Positive Gearing Work with An Investment Property?

As mentioned previously, the ultimate goal of owning positively geared investment properties is to gain positive cash flow that will not only cover the expenses of the investment property itself but also provide a source of passive income for the owner.

The goal of this investment strategy is to gain wealth and stability, which is in line with investors who choose the negative gearing approach. It’s just a different way of going about it.

Rather than seeing high capital growth and selling when the time is right, investors focus on gaining income while the property is in their hands when negative gearing is the chosen strategy.

Essentially, they want to make sure they’re seeing a return on their investment throughout their entire ownership, not just at the end.

Benefits Of Positively Geared Property Investment

More Cash Flow

Though a property focused on positive gearing may see lower capital growth overall than one designed to negatively gear, the major plus is that you can use your own home from the get-go as a source of additional income.

You’ll see the fruits of your labour upfront as you receive rental payments from tenants that cover not only your maintenance costs, mortgage fees, interest payments and other expenses, but will also provide extra cash for you to invest, set aside as savings or spend as you see fit.

Increase Your Borrowing Power

Properties that aim for positive gearing outcomes tend to be considered a little less risky than ones with negative gearing goals, simply because the income received throughout the ownership is greater than the expenses incurred.

This can ultimately set you up with more borrowing power should you wish to expand your investment portfolio.

Versatile Option for New And Old Investors

Positively geared properties are highly attractive investment opportunities for both seasoned and rookie investors alike.

New investors can begin their portfolio with a property that offers less risk or financial burden until the eventual sale.

Established investors with an existing property that is positively geared have seen/are seeing the benefits first-hand, and will likely choose to grow their portfolio with similar properties.

Cover Losses of Your Negatively Geared Properties

If you do decide that you’d like to try your hand at owning a negatively geared property, you can utilise the income from your existing properties built around positive gearing to cover any losses incurred so you’re not left out of pocket.

Drawbacks Of Positive Gearing

Your Rental Income Will Be Taxed

Yep, income from rent is taxable income so the ATO is going to want their share of your rental income as you receive it. Be sure to incorporate this into your tax payable calculations when deciding whether to go ahead with your investment.

Fluctuating Or Slow Capital Growth

The majority of properties with positive gearing benefits tend to be located in or near rural or regional towns, which can often affect the capital growth of an investment. This may take a toll on your ability to access equity to fund other prospective investments.

Low Rental Yields Can Negatively Impact Your Cash Flow

As mentioned above, one of the major benefits of positive gearing is positive cash flow. This can be negatively affected by low rental yields, depending on the state of the property market and other economic and social factors.

What about Neutral Gearing?

Yes, if you’re wondering is there a “neutral” gearing option, there is!

This concept happens where the amount of money going out per year is the same as the amount of money coming in – enough rent is received over twelve months to exactly cover the full cost of all the outgoings.

But, this usually doesn’t happen naturally and probably requires some creative accounting to make happen year on year on year.

Neutral gearing is more likely to be found in the space surrounding seasoned property investors with multiple property investments; whom by default have more moving parts than first-time investors. This will generally allow accountants more wriggle room to ‘carry the one’.

Looking at the numbers for your investment strategy

Okay! But what has positive or negative gearing got to do with hammers and screwdrivers?

Positive gearing and negative gearing should be considered separate tools available to investors to assist with certain investment (tax) outcomes. Positive and negative gearing can also be used to create opportunities that otherwise might have remained out of reach.

Just like there is no perfect approach to renovating, there is no one investment gearing tool that does all jobs. Much will depend on many varying factors.

If Mary’s goal is to reduce the amount of personal tax she pays, her positively geared property isn’t helping her.

If Bill is struggling with cash flow and generally finding it hard to make ends meet, his negatively geared property isn’t helping him (since now he needs to personally fund the $10,000 loss: $200 per week out of his own pocket).

Then Which Is Better, Positive or Negative Gearing?

The end goals of both positive gearing and negative gearing investment strategies are very similar: to gain wealth and stability through well-researched property investment opportunities.

As with all property investment, it is important to weigh up the different factors like overall taxable income, the depreciation schedule of the property, any tax benefit that may be afforded, any tax deductions that may come into play, as well as interest rates and more.

It’s always best to seek independent financial advice on any investment you plan to make but essentially, when it comes to negative and positive gearing, those investors with a steady income stream that is likely to increase could consider negative gearing as a quality investment, while investors who prefer an opportunity that will provide positive cash flow throughout the ownership could benefit from a positively geared property.

keys on hand

All in all..

If you’re interested in finding out more about positive and negative gearing or property investments in general, please don’t hesitate to reach out to our team of experienced and highly skilled real estate experts.

We can help you find the positively geared property, as well as negatively geared opportunities to suit your specific circumstances.

Pick up the phone and call (02) 9056 4311 for a friendly chat today!

If gathering info online is more your style, we’ve got a contact form where you can send us a message.

How Does Capital Gains Tax Work When Buying Or Selling Off-The-Plan

Daniel Chadrawy on May 13, 2022

Ugh. Taxes. They’re not everyone’s best friend.

They are, however, a part of life. Ben Franklin once noted that in this world, nothing can be said to be certain, except death and taxes. Ben Franklin died in 1790. Over 200 years later, we’re still dealing with taxes. He was certainly on the money (pardon the pun).

We digress, the real reason we’re here today is not, in fact, to whinge about taxes behind their back, but to inform you of the ins and outs of capital gains tax (CGT) when it comes time for the purchase or sale of an off-the-plan property. Understanding how CGT works now will help you later on when it comes time to complete your tax return after you sell.

Keep reading this article to learn about capital gain, capital losses and how off-the-plan investment properties offer a range of benefits, even when CGT is taken into account.

What Is ‘Off-The-Plan’?

Essentially, buying off-the-plan means you’re buying a property while it is still in the planning, development or construction stages. As the purchaser, before you sign the contract, you will generally be able to see a floorplan and the location of the property, as well as having some input into appliances, colour schemes and fittings, but not too much else until you settle.

Free Silhouette of Crane Near High Rise Buildings during Sunset Stock Photo

How Does ‘Off-The-Plan’ Work?

Off-the-plan investors will generally be up for a deposit of around 10%-15%, but in some circumstances, it can be as low as 5%.

The balance is then paid only once the property has been fully constructed, which poses quite a few advantages to buyers.

Considering it can take 12-18 months for an off-the-plan property to be ready for settlement, this allows the purchaser more time to save before payments like stamp duty buying fees is required. On top of this, the far-off due date allows an extended period to act if you’re attempting to find a buyer for a property you currently own to fund the purchase of your new investment.

As a prospective off-the-plan buyer, it’s generally not too hard to find more information about the contract the deposit and everything in between, if you know where to look. (the Liviti website is a great place to start).

What Does It Mean To Pay Capital Gains Tax?

Alright, we’re back to the nitty-gritty tax talk. Bear with us here. It may be boring, but it’s important to know this stuff before entering into an off-the-plan contract you plan to sell in future.

Capital gains tax is managed by the ATO, calculated as part of your income tax and is applicable to all properties (with one or two exceptions, but more on those later in this article).

CGT applies to properties acquired post-1985, as this is when CGT was introduced.

For taxpayers, CGT is applied to any capital gains you’ve made within the financial year. A capital gain refers to a profit made on the sale of any assets.

capital gains tax when buying or selling off-the-plan

Sale Price – (Purchase Price + Costs) = Profit.

For example, if you purchase a home for $500,000, sell it for $800,000 and incur $50,000 worth of costs in the process of buying, owning and selling it, your profit would work out to be $800,000 – ($500,000 + $50,000) = $250,000. That $250,000 is what you would pay CGT on.

What Is The Ideal Amount Of Capital Gain Tax?

It’s important to realise that there really is no specific capital gains tax amount that is ideal, on the whole. It truly does depend on individual circumstances.

As your capital gain increases, your capital gain tax will also increase and will depend on factors like the amount of time you’ve owned the property, your marginal tax rate, and more.

How To Calculate Capital Gain Tax

We’re going to try and simplify this as much as we can because nobody wants to spend time reading tax info. Here goes…

By law, you pay CGT as part of your annual income tax. Essentially, there’s no specific CGT tax rate applied, but the tax rate is subject to your total income which will include any applicable capital gains (or capital losses).

Here are a few examples of different ways one might complete their CGT calculations…

1. Discount Method

This method allows you to reduce your capital gains if you sell the asset after a period of more than 12 months of holding it. A discount of 50% may be applied in this case.

So, if you make $205, 000 profit, you would only pay CGT tax on the $102, 500 gained.

Follow this formula…

  1. Asset Sale Price – Cost Base = Capital Proceeds
  2. Capital Proceeds x 50% = Capital Gain

2. Indexation Method

This allows you to increase the cost base by applying an indexation based on the Consumer Price Index (CPI), up to September 1999.

Follow this formula…

  1. CPI for Quarter of CGT Event ÷ CPI for Quarter when Expenditure Occurred = Indexation Factor
  2. Capital Proceeds x Indexation Factor = Capital Gain

No matter how you plan on calculating CGT, it’s super important to consult with a tax specialist so you don’t end up with the tax department hot on your heels.

Capital Gains Tax For Foreign Residents

If you are a foreign resident and an investor in off-the-plan property in Australia, your CGT calculations will slightly differ.

You will be required to pay GCT on taxable Australian properties that you sell, worth more than $750,000.

Unfortunately, some CGT exemptions and discounts will not be applied. For example, when being taxed you will likely not be eligible for the 50% CGT discount when you make a capital gain after holding the property for more than 12 months (unless you purchased the property before 8th May 2012).

The good news is that any assets signed over to you in an acquisition before CGT started on 20 September 1985 are not subject to it when re-sold.

Tax Planning For Off-The-Plan Apartment Purchasing

When it comes to tax for off-the-plan apartments, it’s important to know how CGT might affect the property before settlement and eventually when the property is sold.

Having a plan for the method of CGT you or your tax agent is likely to use when the time comes is good to know from the get-go.

Certain items can be used to make tax deductions and work to lower CGT including rental advertising, interest on the loan, strata fees, stamp duty, depreciation and repairs/maintenance, so keep these in mind.

Again, it is so important to contact a tax specialist to make sure you’re able to take advantage of these tax benefits before purchasing off-the-plan property in Australia.

How Can You Avoid Paying Capital Gains Tax?

Often, by making the property a principal place of residence (PPOR), investors can get away with not being taxed for GCT.

Here’s the deal…

The property must have a dwelling on it and it must be your PPOR, meaning it is where you live, where your personal belongings are, where your mail is delivered, etc.

Free Little Girl Playing in a Box Stock Photo

An exemption is available if PPORs eventually become a rental property, as long as it sells within 6 years of becoming a rental AND no other property is listed as your PPOR. If you reoccupy the property as a PPOR before the 6 years is up, the exemption resets.

As for discounts, investors who have held an asset for more than a year-long period may be eligible for a 50% discount on capital gains tax once its sale is completed. There’s also the possibility of tax discounts if the property is purchased by a self-managed super fund.

Again, all of this is dependent on circumstances. Please seek expert advice before agreeing to a contract, paying a deposit or planning a sale.

Selling An Off-The-Plan Property Before Settlement

Can You Sell Off-The-Plan Properties Before Settlement?

Yep! Off-the-plan properties often provide the opportunity within the contract to re-sell in the time period before settlement which is an awesome advantage to buyers.

If circumstances change prior to settlement, you may be able to sell up and hand the signed agreement over to a new buyer (kind of like when you have a gym membership and you literally never go so you find someone else to take over the contract instead…yeah, we’ve all been there).

Making a tidy profit from pre-settlement sales is possible if you’re clever about it.

How To Sell Off-The-Plan Property Before Settlement?

Firstly, consider whether the developer will allow a re-sale on an unconditional contract prior to settlement. Always check the fine print in the contract and have a legal expert confirm whether a re-sale is possible.

Once the legal stuff has been a-okayed, here are a few tips…

  • Timing is key! Try and allow at least 6 months from the expected completion date to give the property a good chance at selling before it’s due to settle.
  • Hire an agent to market the property for you. They can promote through their website, sales agents or online platforms!

Things Consider When Selling An Off-The-Plan Investment Property Before Settlement

If re-selling prior to settlement, it’s important for investors to consider the need to pay stamp duty when the property is re-sold, cover any additional legal fees for solicitor services and marketing fees if you use an agency, plus, our old friend CGT will rear its ugly head in the same tax period.

Most importantly, remember that you do remain bound to the developer after signing if no other buyer will take on the title.

calculate capital gains tax

Where To Find Information On Capital Gains Tax Selling Off-The-Plan?

As always, a qualified tax agent or solicitor is your best bet for feedback on the nitty-gritty stuff, but if you’re still confused about any aspects of CGT and buying/selling an off-the-plan property, don’t hesitate to get in touch with our team here at Liviti.

You can get in contact with us or view our available properties.

Remember, CGT might suck but it doesn’t have to be hard to manage if you work with the right people.

Sustainable Apartments: Everything You Need To Know

Daniel Chadrawy on May 13, 2022

YES, we’ve all heard sustainable living is becoming more and more important! Have you realised you’re already doing it? We are re-using our Woolies bags, using keep cups for our morning coffee, struggling (slightly) to drink out of paper straws and reducing our plastic usage.

With growing concerns about climate change, biodiversity loss, resource depletion, and more, sustainability has become a necessity in today’s society.

More Aussies than ever are embracing apartment living. The country is witnessing a HUGE rise in the popularity of high-density.

For Sydneysiders, more than half of the city will call an apartment home by 2030, and right now 80 per cent of them want information about a building’s environmental performance at the point of sale or lease. HURRAY, people are finally getting the message and sustainable apartment buildings are the perfect solution!

So is sustainable apartment living paving our future way of living? Keep reading to find out!

An image of sustainable apartment complex taken from Architecture & Design website
(Source: Architecture & Design)

Basics of Sustainable Design

Aussie residents are on the lookout for more green features before they buy or rent. They are searching for sustainable design elements, which aim to reduce negative impacts on the planet and boost the well-being and health of the community.

The innovative use of renewable energy systems, and shared electric vehicle charging spaces for tenants are just a few of the eco-friendly features introduced in recent developments.

But what about the basics of sustainable apartment design?

1. Reducing our Energy Use

Encouraging the use of natural light is an easy and effective way to help apartment dwellers enjoy the winter sun and avoid the summer heat. This can be done by enhancing the number and size of windows and skylights in the home.

Not only does this reduce the building’s energy costs, but it also improves residents’ well-being and productivity. Solar panel design, energy-efficient appliances and lighting such as LEDs are also effective eco-friendly features to look out for to lower energy and water consumption.

2. Renewable Building Materials

Architects and developers can include materials that have come from natural, renewable sources in sustainable apartments. The production of traditional building materials releases a mass of greenhouse gases into our atmosphere, contributing to the dilemma of climate change.

So green materials such as bamboo flooring, timber, natural stone, wood, low VOC paints and carpets are the new way to go.

3. Rooftop Gardens

Rooftop gardens are another beautiful and basic sustainable design feature that removes harmful airborne particles within the urban city air and provide a ‘green shield’ for the building. The plants absorb direct sunlight and act as a natural insulation blanket, lowering energy costs by reducing the need to use electricity, and helping our environment too.

Using solar panels to produce green electricity
(Source: Anders J & Biophilico)

Apartment Living is on the rise

Gone is the great Australian dream of the 1000sqm block, lost to apartment blocks as high density living rapidly grows across the suburbs. Raising a family in an apartment is becoming an exciting new trend! According to ABS data, the percentage of Australians choosing to live in apartment buildings has increased by 78 per cent over the past 25 years!

Apartment buildings in inner-city regions are carefully designed to deliver convenience and comfortable living, without the maintenance and long commutes associated with traditional suburban homes.

High-density living offers easy maintenance, awesome amenities, increased safety and short-term options to residents who have a busy lifestyle and want to save money. Sounds perfect, doesn’t it?

Workers want to have the city at their fingertips, opting to move closer to the CBD to manage their busy lifestyle and enjoy convenience. The inner-city apartment lifestyle combines innovative design and modern living with a short walking distance to work, fine restaurants, shopping areas and opportunities for leisure. What more could you want?

high rise urban buildings

How can individual apartments be sustainable?

High-density living, whether the buildings are sustainable or not, provides a great opportunity to reduce your carbon footprint.

If your apartment building is not sustainably designed, you can still adopt small habits to become more eco-friendly. Here are 3 tips to transform your apartment into an eco-friendly space!

1. Save energy

There are so many ways to save energy in your own apartment! First, consider switching out your lightbulbs for LED lights. LEDs are eco-friendly and use less energy, with a longer lifespan that will help you save energy and lower your power bills.

Take advantage of the sunlight during the day to add more natural lighting into your space, and further reduce energy usage. Conserving water by using water-efficient appliances such as washing machines and showerheads can also help to save energy and water consumption.

2. Adopt a zero-waste lifestyle

Reduce, reuse, and recycle! If you don’t have an apartment complex that provides recycling facilities, you can still establish your own personalised system to make your space more sustainable. Reuse or repurpose old items before they go to waste, separate recyclable items from general waste and drop them off at local recycling centres.

Change your purchasing habits and invest in more sustainable products such as eco-friendly toilet paper, reusable tea bags and paper materials. Research into what you can or can’t recycle, to ensure you do it right!

3. Plants!

‘Going green’ can be taken literally by adding plants into your apartment space. Not only will they brighten up the home, but also improve air quality, natural ventilation and your wellbeing.

An indoor garden is easy to maintain and has been proven to relieve stress, and enhance your mood, focus and creativity. Who doesn’t love a natural mood-booster?

greener apartment living
(Source: Space Joy)

How can new apartment buildings be sustainable?

High-density living is usually assumed to be more sustainable than other housing options. But each year apartment living contributes to 22 per cent of the city’s water usage and 9 per cent of greenhouse gas emissions. This calls for action to be taken within the development process to improve sustainability.

1. Perfect Location

Firstly, developers should choose an urban village location that is central to public transport options and local facilities such as schools, shops, dining and entertainment. This will lower the need for tenants to use cars, reducing carbon pollutants.

2. Energy efficiency

As mentioned earlier, installing water and energy-friendly features into the apartment block is important to ensure it is sustainable. This includes water tanks, a greywater system, dual-flush toilets, low flow faucets, showerheads, washing machines and dishwashers.

Designing an apartment building that maximises solar panel electricity, natural light, insulation and ventilation will reduce the need to use power for heating and cooling. A green roof is another optimal installation that reduces stormwater runoff, increases biodiversity and lowers urban heat effects.

3. Sharing is caring

Incorporating shared common spaces within the structure that encourages social cohesion can also minimize environmental impacts. This includes gyms, swimming pools, gardens or even commercial spaces that residents can share without having to leave the apartment building.

This reduces the need to leave the property and travel to other facilities by car, lowering emissions that negatively impact our environment.

Shared apartment facilities

How can existing apartment buildings improve their sustainability?

Once an apartment complex is built, people often think they are ‘stuck’ with them. But with simple maintenance and fine-tuning, apartment buildings can actually become more sustainable! Here are a few ways that building owners and tenants can transform complexes into sustainable living spaces.

1. NABERS

NABERS can help apartment owners to measure and manage the performance of their property and reduce the cost of energy consumption. A high NABERS rating indicates a strata community is well-governed, makes good decisions and attracts buyers with a deeper insight into a property’s performance. So apartment owners should track the performance of their building and aim to improve their rating, to ultimately enhance their sustainability.

To improve their NABERS rating, building owners can encourage tenants to use energy efficient appliances, and lower their consumption of water and lighting when not necessary. They can also implement shared common areas to motivate tenants to spend time together at the property without the need to travel for social amusement.

2. Green Building Initiative

Another option is the Green Building Initiative, a not for profit organisation that encourages the adoption of building practices that are resource efficient and environmentally sustainable. The initiative facilitates a web-based program for green building rating and certification, including an onsite assessment by a qualified third-party assessor.

NABERS rating scale
(Source: NettZero) Image of NABERS rating scale

Liviti’s Top 5 sustainable apartment developments in Australia

1. Ridgewaters Kiama

Design

These elegant and spacious three-bedroom apartments have social, economic and environmental sustainability embedded throughout their design. Ridgewaters Kiama is centrally located to communal amenities and recreation, reducing the need for residents to travel by car. It has rainwater tanks, cross ventilation and provisions for solar panels, to lower the cost of electricity and save water and energy consumption.

Ridgewaters also offers Electric Vehicle Chargers and EV Charging Load Management, to encourage the use of electric cars which eliminate exhaust emissions and have a better impact on air quality compared to conventional vehicles. All the boxes are ticked!

Amenities

Ridgewaters Kiama project
A digital representation of Ridgewaters Kiama Project

2. Hotham, Melbourne

Hotham in North Melbourne offers apartments and townhouses that blend sustainable design with innovative, modern architecture. Just 2km from Melbourne CBD with exceptional access to public transport, Hotham encourages residents to ditch their cars and enjoy sustainable travel.

Hotham offers an incredible abundance of communal spaces, with SPECTACULAR facilities. A golf simulator, gold class cinema, sports bar… WOW! And did we mention Hotham’s gardens? There’s rooftop gardens, a Japanese garden and a central garden, with an array of plant-life that help to improve air quality and bring residents together.

Hotham Melbourne project
Hotham Melbourne project

3. One Central Park, Sydney

One Central Park in Sydney’s CBD inspires and drives the future of green architecture. It connects Australia’s leafy green landscape to high-density city living, with a lush, towering plant design set on display to thousands of pedestrians every day. Those who admire One Central Park at street level are able to realise how the mixed-use property epitomises the future of sustainable living.

With a green roof, plant-filled areas, an automated water irrigation system, a thermal tri-generation plant, and car-sharing systems… One Central Park has sustainability at its forefront.

It is beautifully designed, with a large panel of hovering mirrors that reflect flickers of sunlight down to lower levels during the day. At night, LED lights transfigure the panels into a sparkling light installation. One Central Park achieved a 5 Green Star rating for its residential and retail towers.

Image of One Central Park building in Sydney
One Central Park building in Sydney

4. Granville Place, Sydney

Located just 2km away from Sydney’s second CBD, Parramatta, Granville Place pairs vibrancy and energy with relaxation and harmony. These highly liveable homes place you in the heart of the community, allowing residents to enjoy the convenience of cafes, restaurants, retail stores and schools just minutes away from home.

With a brand new public park and resident’s oasis garden, you can indulge in these apartments where everything is at your doorstep! Granville Place allows for a profusion of natural light to reduce the use of artificial lighting and encourages a sustainable lifestyle.

Granville Place high rise development
A digital representation of Granville Place development project

5. The Retreat Precinct in Lidcombe, Sydney

The Retreat Lidcombe is Sydney’s newest five-star sanctuary, surrounded by shopping centres, schools, universities and stunning recreational facilities. Completed with a lushly landscaped 3000sqm central podium garden, open parklands and BBQ facilities, the Celeste structure brings the community together.

The property is situated amongst Sydney Olympic Park’s world-class sporting, dining, entertainment and retail venues, enabling residents to enjoy an active lifestyle and achieve a sense of neighbourhood.

Retreat Celeste in Lidcombe new residential development project
A digital representation of the new Retreat residential development in Lidcombe

Australia leads Green Building Boom

Did you know that Australia dominates the world’s green building sector as a leader in the art and science of green building?

The World Green Building Trends 2018 SmartMarket report has shown that Australia sets the standard as the leading country in the world’s sustainable building sector. The global green building trend indicates increasing demand for new eco-friendly infrastructures that reduce your energy cost and consumption, and improve liveability for present and future generations.

Australian developers prove that green architecture and sustainable building design such as concrete floors that absorb thermal energy, energy efficient window placements and solar energy are highly effective in achieving sustainability. We are finally working towards reducing our environmental impact! 37 per cent of Australia’s office space is now Green Star certified, and the country’s renewable development revolution will only continue to grow from here!

Conclusion

Sustainable apartments are truly driving the future of urban living. They offer a heap of benefits to residents, the community, and our planet. With the definite rise in apartment dwellings and the need to protect the environment, sustainable apartments offer an excellent solution!

Liviti is committed to going green and developing sustainable properties that are not only beautifully innovative and artistic but also thriving and flourishing with life.

So next time you are looking for a new space to call home, GO GREEN, and CONTACT US for sustainable apartment options!

New Sydney Tower concept – A Refreshing CBD Revamp

Daniel Chadrawy on May 9, 2022

The new concept proposal

An exciting new construction project in the Sydney CBD has been proposed to the City of Sydney Council and we have never been more excited!

The project proposal is expected to cost more than $291 million and will feature new leisure, entertainment, and commercial facilities for all of us to enjoy. It is likely to produce some hefty economic rewards and further consolidates the hustle and bustle of commercial activity on George Street. It’s a truly exciting addition to Sydney’s impressive list of high rise buildings.

The tower concept is proposed to be a multi-faceted building that can cater to functions of any kind possible! It is expected to have:

  • 32,602 square metres of office building space
  • 16,822 square metres of hotel space
  • 3,366 square metres of back-of-house theatrical space
  • 4 basement floors

Image: Urban Developer

(Image: Urban Developer)

The project concept also outlined extensive back-of-house- facilities, and a series of upgrades to the State Theatre. An example includes the proposed basement levels that will act as a loading facility for the theatre located below.

It’ll never be a dull moment here. It is expected to provide us with ground-level retail outlets, hotel accommodation, and conference spaces for us to enjoy.

The 33-storey, mixed-use tower is expected to replace the yet-to-be demolished buildings at 458-472 George Street. The demolition of those two buildings that currently occupy the space has been approved and will likely begin demolition shortly. The Sydney tower concept is also proposed to be built upon a podium on top of the iconic, heritage-listed State Theatre.

The development proposal made it very clear that the concept does have the intention not to infringe on the functions or experience that the State Theatre offers.

On the other hand, the proposal stressed that the tower concept would be vertically separate from the Theatre below and would be beneficial in the long-term preservation of the heritage-listed building, and would supplement the surrounding streetscape.

(Image: Laura Cros @locreaphoto)

Inside the ICON: The Sydney State Theatre

The Sydney State theatre, located on Market Street is an iconic, heritage-listed building that has long served Sydney as a powerhouse entertainment facility. Since 1929, when the theatre officially opened, The State Theatre has been notorious for hosting some of the most sought-after domestic and international comedy, music and film acts that none of us could afford to miss. It has lived up to its long reputation in consistently delivering “entertainment of unparalleled performance” to its patrons.

The Theatre interior is unmatched and is able to cater to the needs and wants of patrons and performers with unmatched elegance and grandeur. The bright red and gold aesthetic, paired with the classic interior is absolutely divine.

Image: Sydney State Theatre

(Image: Sydney State Theatre)

The new concept proposal is expected to further consolidate and complement the timeless and show-stopping design of the Theatre interiors and exterior. The proposal documents have underlined that the close proximity of the tower concept to notable buildings in the Sydney CBD such as the Queen Victoria Building (QVB), Gowings, the Theatre, and several other iconic buildings creates an abundance of opportunities for conservation of the past and the modernisation of iconic Sydney buildings in the Sydney CBD.

To learn more about exciting real estate developments, trends and projects we encourage you to connect with us.

Click here to discover more exciting news!

Buying Off the Plan Properties: 7 Powerful Concessions to Save Big on Stamp Duty

Daniel Chadrawy on May 6, 2022

When it comes to off the plan concession offerings, quite a few benefits are available to purchasers who qualify for them, making them an attractive opportunity for all kinds of buyers.

Buying off the plan - couple seeing on a laptop screen where a professional showing them something about property investment

One of the most popular off the plan concession opportunities involves acquiring a stamp duty concession. Generally, these concessions will benefit first homeowners and purchasers who intend on living in the home.

What Is An Off The Plan Transaction?

Buying a property off the plan means you are entering into a contract for property purchase before the construction of the property has commenced or while construction is in progress.

Off the plan - a broker showing a property to a couple

An off the plan transaction could refer to land that is going to be subdivided, an apartment, a townhouse, or a range of other dwelling types. Land, in itself, does not qualify.

Off The Plan Stamp Duty Concessions

Taking advantage of available benefits is a huge incentive for home buyers, especially ones that allow a reduction to the upfront fees required to secure a home.

What Is Stamp Duty?

Also known as transfer duty, this is one of the bigger costs to be accounted for. It is the tax that the Government imposes when you purchase a property at a particular value, or when the ownership is transferred. Unlike land tax, you only pay duty once.

It is calculated according to the total dutiable value of the property.

Stamp Duty - What is Stamp Duty - A person showing a dummy house on his hand

Simply match up the purchase price of the property you’re considering with the dutiable value information in the table below for NSW rates on owner-occupied or investment purchases. It’s easy enough to find information for other states via Google.

What Off The Plan Concession Is Available With Stamp Duty?

It’s no surprise that Australian stamp duty concession availability and eligibility vary between states.

In NSW, this concession works by pushing the duty payment due date 12 months into the future (ahead of the standard 3-month timeframe), or until the property has been officially handed over, whichever comes first.

In the ACT, if your contract was exchanged between 1 July 2021 and 31 March 2022, no duty applies to off the-plan unit owner-occupier purchases up to $500,000. This was then increased to purchases up to $600,000 as of April 2022.

There are quite a few first home owner concession opportunities including the First Home Buyer Assistance Scheme in NSW which may apply according to the dutiable value of off-the-plan properties.

Honestly, we’re chuffed just thinking of all the smashed Avo on toast those savings could buy!

Who Is Eligible For Off-The-Plan Concessions?

In NSW, in order to be eligible for stamp duty concession, the off-the-plan property you intend to purchase must be a residential property that at least one purchaser intends to live in as a principal place of residence for 6 months continuously, within 12 months of purchasing the home.

You must also be an Australian citizen OR a New Zealand citizen with a subclass 444 visa having lived in Australia for over 200 days in the last 12 months OR a permanent resident who has lived in Australia for just as long to be eligible.

If any residence requirement is not met, purchasers may need to pay a penalty tax.

How to Apply for Off-The-Plan Stamp Duty Concession

Currently, the State Revenue Office manages concession applications relating to first home buyer off-the-plan purchases in NSW.

Here’s your step-by-step action plan for applying…

  1. Do your own thorough research before applying
  2. Confirm your Australian citizenship status and other personal conditions meet the application requirements
  3. Complete and lodge your application accurately and with supporting evidence

You can find further information and access the application form here.

New Requirements For Off-The-Plan Contracts To Know Before Your Contract Date

Prior to the date of the contract, check out the new requirements put into place in NSW from December 2019.

These new laws were added to create more disclosure obligations on vendors so that purchasers have more transparency throughout the buying process.

Buying off the plan properties - a professional showing a client the new requirements for stamp duty in Australia

As a first home buyer, purchasing a residential property, like a new apartment, off-the-plan can offer some pretty sweet benefits, but please do keep in mind that suitability will always depend upon the individual circumstances of the purchaser.

Contact one of our expert property consultants at Liviti to help answer any of your questions or take a look at our latest off-the-plan properties available for purchase.

Happy house hunting!

Is stamp duty payable on off the plan purchases in NSW?

It certainly is! Unless you meet any of the concession options mentioned in this article, your stamp duty payment will be due within 3 months of the completion of the transaction.

Pros and Cons of Property Investment

Daniel Chadrawy on March 30, 2022

For many investors, property is the vehicle of choice for accumulating wealth for themselves, their families, or their businesses for the future. With careful planning and the appropriate strategy in place, real estate can be an extremely effective tool to create both ongoing cash flow and capital growth over time.

Like everything, the more educated you are on a topic the lower the risk will be. That is why we have created this pros and cons list to help you make this decision a little bit easier.

Are property investments worth it?

There are several factors that you should take into consideration when doing your research and investing in property. Property investments require proper planning, knowledge, and weighing of all the pros and cons as well as your own financial situation before making the big jump to decide whether this is the right option for you.

The Pros

You would be delighted to note that you could benefit immensely from property investment. Several factors can be more advantageous and vital than others and can take longer to achieve. This is why it is so crucial that you are aware of the longevity that can come from this investment and that you properly research before purchasing to tailor a strategy to your unique, individual situation.

1. Security and Stability

Compared to other investments, the property has proven to be one of the more secure and stable investments over time. Everybody needs somewhere to live. This means that property is always in demand.

While the property market may fluctuate a lot, there tends to be less of an impact from these shifts, and the time it takes to sell a property is a lot longer than any other investments like shares that can be sold in seconds. This makes it less unpredictable and an overall safer choice when investing.

2. Positive Cash Flow

One of the more significant advantages is using your real estate investment as a rental property and generating a steady income in return.

The more properties you own, the greater the positive cash flow generated and the sooner you can rid your life of unnecessary financial stresses.

Rental income from your tenants come with many financial benefits like:

  • Having all upkeep and maintenance expenses paid for
  • Getting back the amount of money you spent on the property
  • Taking care of the mortgage repayments
  • Gaining positive cash flow

With enough properties and patience, this could eventually be your main source of income and could end up funding your entire lifestyle. Say hello to early retirement!

3. Access to tax benefits

Although these vary from state to state, property investors can also be eligible for several tax benefits.

  • Advertising costs – you can claim any expenses incurred from advertising against your income
  • Council rates – can be claimed during the periods when a tenant is occupying the residence
  • Land tax
  • Insurance – can cover tenant-related risks incurred
  • Utilities – deductions for basic utilities can be claimed such as gas, water, electricity and internet
  • Cleaning and pest control

If you have owned a property for several years, you can reduce your taxable income by claiming tax deductions for expenses that are related to:

  • Negative gearing – if you are losing money on your investment, you can offset this against your income.
  • Borrowing expenses – claim expenses from taking out the loan you used in buying the property.
  • Depreciating assets – you can only claim depreciation on assets that meet specific criteria.
  • Capital works – deductions for the costs of structural improvements like building extensions and building extensions.

4. You can leverage your investment

Basically, this means using someone else’s money to build wealth. Leveraging your investments means that you can buy more for less. In the property market, this is when you pay the deposit, and the bank loans you the remaining amount. This helps you maximise positive cash flow return when the property experiences capital growth.

When asking yourself if this is worth investing in, consider the large amount of money that the bank is willing to lend to help you purchase your property.

5. Compounding

Property is an excellent long-term investment. As mentioned before, the market can fluctuate, meaning there is a lot of potentials for the property value to go up along with your cash flow, especially if it is in an area with a higher rental yield.

The income you receive from another property can then be used to purchase another one and so on. This is called compounding, and it doesn’t occur immediately. That is why it is so crucial to begin investing sooner rather than later. It takes time and patience but eventually, you can get to the point where your properties are paying for themselves.

6. Physical Asset

For most people, having something that you can physically touch and feel provides them comfort, as most are fearful about investing in an asset such as stocks or crypto as they cant see exactly where their money goes.

passive income

The Cons

The drawbacks can be just as significant to be aware of as the benefits. Investing in property is a big and risky decision to make and is not one you should make lightly, so it is beneficial to be aware of all of the factors that can impact you if you are not ready.

1. Lack of liquidity

As mentioned before, the property can take longer to sell. Depending on your property’s area, this could take weeks or months, and even then, the cash flow would not be instant. This could be a disadvantage to you if you are in need of immediate access to cash.

2. High entry cost

High entry costs involved with property investing is one of the biggest obstacles preventing people from participating. Property prices constantly rising make it continually harder to get into the market, especially when the deposit alone could cost you tens or even hundreds of thousands of dollars.

3. Ongoing costs

While one of the benefits was that tenants could pay for other fees, it is important to note that this does not happen overnight. Until the rental income is enough to start generating a positive cash flow, it is up to you to pay for the other expenses your investment can incur.

These can include:

  • Insurance costs
  • Council rates
  • Mortgage repayments
  • Maintenance costs
  • Renovations

As mentioned before, though, with proper planning and preparation, the tenant can cover these additional costs and significantly reduce if you claim tax deductions.

4. Bad tenants

While you can plan for the case of most of these cons, unfortunately, nothing can prepare you for bad tenants. Not only can they affect your income if they don’t pay their rent on time or at all, but they can also cause unnecessary financial and emotional stress.

On the other hand, you could also end up without any tenants at all or even go for long-vacant periods. If this happens, you will have to be prepared to cover the cost of the property yourself for a period of time.

5. You could have all your eggs in one basket

It can be common for investors to “have all their eggs in one basket” because there is such a high entry cost. This means not taking part in other investment properties or opportunities and can lead to devastating circumstances if the housing market fluctuates unexpectedly or the property you have invested in does not perform the way you thought.

There are ways to prevent this from happening though

Diversify – Try to have a good mixture of investments to make up for it if one falls through.

This can be property, shares, businesses etc.

Specialise – If mixing it up is not for you, that’s ok. Just focus on growing your skills in the property market. This will lower your risk and raise your potential income return.

additional funds

Is property investment right for you?

There you have it, the pros and the cons. Now it’s time for you to decide whether this is the right step for you. Yes, we understand it can be a risky and scary process; however, if you start sooner and if right, investing in property can be a great way to build wealth and secure your financial future a lot sooner than you thought possible.

Tips for buying an investment property

If you have decided that property investment is the direction for you, then here are some simple tricks to help you get your foot in the door.

1. Be clear on your goals

Yes, there are many benefits to investing in property; however, as you’ve seen, there are also many realities you need to consider. Be aware of your financial situation and make sure you are in the position to cover your monthly repayments and any other additional fees without impacting your current lifestyle. Ask yourself if you’re comfortable with the risks involved, like tenants not paying their rent on time, sudden market changes and significant rises in the interest rates.

2. Do your research

Knowledge is everything when it comes to investing. If you go into it blindly, you just might come face to face with a few nasty surprises that could’ve been prevented.

Things you can research include:

  • Different property types
  • Different suburbs
  • The housing market in certain suburbs
  • How much you can afford to borrow
  • The potential for capital growth
  • Rental yield
  • Ongoing costs.

3. Decide who’ll manage the property

If you’re stretched for time or do not live near your investment property, it may be beneficial to talk to a property manager or real estate agent, but bear in mind this will incur an additional fee.

4. Consider whether you need insurance

Acts of nature, building repairs, contents, and loss of rental income are some of the things to think about. The type of cover and the premiums you’ll pay can vary greatly depending on the provider and the policy you take out.

5. Set a reasonable budget

Be prepared for all of the costs you will incur. You may typically be asked to pay a minimum deposit of 10%-20% in terms of loans.

You will also need to make upfront cash payments for:

  • Legal fees
  • Insurance
  • Stamp duty
  • Conveyancing fees
  • Maintenance and repairs
  • Interest in borrowings.
  • Utility fees
  • Strata fees
  • Estimated vacancy costs, including lost rent and advertising

Conclusion

So now you have all the information you need to consider investing in property. If you’re ready to make the big commitment get a head start by beginning today.

At Liviti, we’re here to help you with all your property needs so contact us here or give us a call today at
(02) 9056 4311. One of our experts can talk you through getting started on your investment journey or simply just discuss the topic more.

A Beginner’s Guide to Investment Property Tax Deduction

Lara Osborn on March 3, 2022

The way Australia’s tax system is set up makes property investment more attractive than any other investment forms.

It’s, in fact, one of the most tax-advantaged investments you can have.

This is because of the numerous tax policies that influence real estate investment and prices, where you can claim investment property tax deductions to maximise your return.

investment property tax deductions

Investment property tax benefits

The tax treatment for rental property investment in Australia is exceptionally generous.

Unlike most other countries, notably the United States and the United Kingdom, our income tax system does not impose a limit on the amount of deductions that can be claimed for investment costs related to rental properties and other capital gain investments.

By understanding the full potential of all tax benefits available, you might be able to earn more money from your investment property and get positive cash flow.

As a quick example, when you sell a property, the capital gain is only taxed at half your individual tax rate.

Therefore, to equip you with all the knowledge you need to know, let’s take a closer look at each of tax deductions and the value they can bring to you.

What can you claim on tax?

1. Advertising expenses

You may have to pay some advertising or marketing costs as a landlord to find a suitable tenant. If you’re using the internet, print media, brochures, or flyers to market your property, you can deduct these advertising costs from your income rental.

2. Property Management expenses

All property management expenses are tax-deductible. These fees might include (but are not limited to):

  • Utilities like electricity and gas
  • Phone and internet costs

If your tenants pay for utilities, however, you won’t be able to claim it as a rental property deduction.

Cleaning services are another expense that can be deducted from your taxes. If you and your tenant agree on a weekly cleaning service or if you need to employ one to have your house professionally cleaned after the tenant vacates, this would be a tax deductible for your investment property.

In addition, if your investment property is on a strata title, you can also deduct the cost of body corporate fees (apartments and townhouses).

3. Maintenance expenses

Maintenance refers to the process of repairing the wear and tear of the building. In this case, you may need to hire a professional to help you do the job.

These expenses might include:

  • Plumbing
  • Electrical
  • Handyman fees
  • Gardening costs
  • Pest Control

However, please keep in mind that the purpose of these expenses needs to be to maintain the property, not to improve it. For example, it’s okay to get tax deductions on plumbing service, not on updating a whole wooden floor.

4. Rates and Taxes

All rates, including water and council rates, can be deducted for the year they are paid. However, you can only claim them during the periods in which the house was rented. So, for example, if your property is rented for only 6 months during the year, you can only claim those rates for that same 6 months.

Land tax can also be deducted if your investment property is rented out. Land tax amounts, payment dates, thresholds, and some applicable exemptions and concessions can be varied by state and territory, so it’s important to check what applies to you.

5. Insurance Fees

If your investment property is covered by insurance, you can claim this costs in your tax return. If you are a landlord, you can get your property covered by tenant-related risks such as damage to the contents and buildings or loss of rental income.

taxable income

6. Loan Interest

This is also the most significant investment property tax deduction that you can claim.

If you have to take out a loan from the bank to purchase your investment property, you can claim any interest charged on loan as an investment expense.

For example, if you take out a $400,000 loan to buy an investment property and the interest on your repayment is $12,000 after a year, you can claim the interest because your loan was used for income-generating purposes.

However, if you use a portion of your loan for personal use, such as buying for a new car or a wedding, you will only be allowed to claim the proportionate portion that you used for investing purposes.

7. Legal expenses

While the legal expenses associated with purchasing or selling your investment property aren’t tax deductible, any legal or tax consulting services you seek to maintain your rental property are tax-deductible expense.

8. Agents and Admin fees

Same as legal expenses, you might not know that your rental agents’ fees and commission and other administrative costs are also tax-deductible.

For example, as a landlord, you might need to use stationery or postage to interact or communicate with your tenants or you may incur travel costs in inspecting and maintaining the property.

tax deductible expense

10. Depreciation deductions

Like any other tangible asset, your property and everything inside, like windows, furniture, carpets or curtains, are depreciable assets.

While you won’t be able to claim immediate deductions on these items in the future as their value is declined over a long period of use.

However, as everything depreciates at a different rate, plus it will depend on when your property was built and whether you have new or second-hand fittings, you need to claim depreciation on an investment property the smart way. Our best suggestion would be to have a quantity surveyor to help you with the work.

What can’t you claim?

1. Costs involved in the purchase or sale of the property

These costs include purchase prices, stamp duty on the purchase, legal expenses and conveyancing fees, first inspection fees, etc.

2. Any expenses relating to your personal use of the property

You can only deduct expenses for parts of the house that are used for investment. So if you are an owner of a 4-bedroom apartment but only rent out 1 bedroom, you can only claim tax deductions on the bedroom you put out for rent.

3. Any expenses tenants have paid

All rental bills you pay for might be deductible, but anything the tenant themselves pay for (like utility bills or strata rate) are not.

4. Borrowing costs

You can claim a deduction on any borrowing expenses associated with purchasing your investment property, such as loan establishment fees, title search fees and costs for preparing mortgage documents. However, if you use any of these fees for personal use, you can’t claim your tax deduction.

investment properties

Other tax discounts you can take advantage of

Negative Gearing

A negatively geared property loses money with respect to cash flow, which means your costs exceed the income. You might be thinking, so why is this an advantage?

Negative gearing allows income from the rent you receive to be offset or deducted against other forms of payment, such as your salary and business income. This reduces your overall tax bill and also helps to increase cash flow if your rental property is cash-flow negative.

It’s worth noting that there are some restrictions on how much you can deduct – generally no more than $20,000 per annum if single or $30,000 for those who are married or de fact.

For short, negative gearing allows property investors to make financial losses if certain criteria are met relating to their rental income and mortgage repayments.

Capital Gains Tax (CGT)

CGT is the tax you pay in a tax year on profits from selling assets, such as an investment property. If you’re an individual, the tax rate paid is the same as your income tax rate for that year.

Put it simply, if you bought and sold your investment property, your net capital gains will be added to your income and increase your income tax.

However, if you have capital gain and you’ve held that asset for greater than 12 months, and you are an Australian resident for tax purposes, you can reduce your capital gain by 50%. This is called the capital gains tax (CGT) discount.

As a result of negative gearing and the concessional treatment of capital gains, real estate is an artificially attractive investment class.

rental expenses

Conclusion

When it comes to the amount of tax that must be paid, the way an investment property is owned can make a big impact.

Therefore, it is critical for investors to carefully analyse how their properties are owned and the potential impact of land tax on their property’s return.

Talk to our finance team at Liviti today on (02) 9056 4311 or talk to a property expert today.

Do Apartments Appreciate In Value?

Lara Osborn on March 3, 2022

For years it’s been a debate that a house appreciates while an apartment depreciates, so it will always be better to invest in a house rather than an apartment.

But is this always the case?

House Appreciates and Apartment depreciate?

It’s obvious that houses have better capital gain than apartments because the land they sit on tends to appreciate over time. However, do houses appreciate and apartments depreciate?

“Houses appreciate and apartments depreciate” is a myth that property investors in the property market often quote. This is, in fact, not always true.

Generally speaking, all buildings can be depreciated. Like any tangible asset, buildings depreciate through wear and tear and need to be constantly maintained. This is not always bad for investors as you can claim tax benefits on this depreciation, and the newer the property, the more tax benefits and the longer they will last.

However, land appreciates, and houses tend to have more land content. So, as a result, houses will have more potential to appreciate and offer a quicker capital growth than apartments.

However, in some inner-city areas, this is not always the case. A block of land in the regional suburbs, for example, is unlikely to be more valuable than floor space in Darling Harbour. Apartments in good locations will always have a lot of prospective buyers interested in them as time goes on.

As a result, when investing in real estate, it is critical to consider location as well as market conditions.

owner occupiers

So do apartments increase in value? The answer is yes! A quality apartment in a great suburb can go up in value even more than a house in a less desirable suburb.

Investing in real estate entails purchasing a property that will appreciate over time and provide capital growth as well as good returns. It is not about investing in a specific type of property, such as a house, just because of the land content.

Houses as the only Investment option?

According to George Raptis, director of Metropole Sydney, most people think that when it comes to investment property, a house would be a better option due to the land that is attached to it.

“But here’s the thing: if you go out into the regional suburbs and buy a house and land package, you might pay $400,000. Of that, $100,000 accounts for the land, and $300,000 is the cost of constructing the property. So the part of the asset that appreciates is only a small portion anyway”. Mr Raptis said.

“If you buy an apartment in a premium land-locked suburb, the land has a higher value. There might be a block of 10 apartments where the land beneath is worth millions of dollars. Your land-to-asset ratio is a lot higher, and that’s really what drives the price up.”

This means that it might be better to own a small slice of a highly valuable piece of land, rather than a large slide of land that has a much lower value.

property prices

The current market condition

In addition, it’s also important to consider the market conditions and the current trend when choosing an investment property.

According to CoreLogic, the gap between houses and apartments is currently very high, where Capital city houses were 37.9 per cent, or $240,500, more expensive than units.

Units are obviously more affordable, and soaring housing prices mean that more consumers are choosing units rather than houses. As a result, city centre apartment prices have risen 12.6% in the last year, the highest annual growth rate in 11 years.

Apartments will continue to be a good investment because supply and demand are in alignment. Properties near the CBD or with good public transportation and easy access to shops, schools, and amenities are frequently in higher demand.

Furthermore, with the international border reopening after nearly two years, the apartment property market is expected to grow significantly in the coming months.

housing demand

Why does an Apartment increase in value?

Capital growth vs cash flow

When deciding on a property investment strategy, you should first consider whether you want capital growth or cash flow.

A capital growth strategy entails purchasing an investment property that is expected to increase in value over time.

A cash flow strategy, on the other hand, entails purchasing a property that will provide a good rental yield and the ability to immediately draw a direct income

This is also the main difference in deciding which types of property to invest in. It would be reasonable to assume that apartments won’t see the same level of capital appreciation as houses, although, as previously mentioned, you are partially compensated by a higher rental income.

As a result, when comparing apartments and houses, both may have similar long-term investment returns, implying that apartments do appreciate in value.

apartment living

Accelerating Appreciation In Apartments

Market comparable is how you determine the value of a property based on the selling price of a similar property with the same characteristics. This is the method by which nearly all houses are priced.

However, apartment values are determined by the profitability of rental income (your total rental income minus expenses). You can increase your net earnings by raising your rent, lowering your expenses, or doing both. By performing these 2 actions, you have increased your annual income, and secondly, you have forced the property value to increase. This is called forced appreciation.

This is the holy grail of real estate.  You can increase the rent charged to tenants by upgrading different amenities, appliances, structural integrity, and overall aesthetics when you own an apartment. When rents are raised, the rental income has a direct impact on the building’s profitability, and the property value rises.

Forced appreciation in apartment complexes can be even more powerful than natural economic equity in houses overtimes.

first home buyers

Difference Between Investing in House and Apartment

Pros of investing in a House

1. Higher capital growth

Due to rising land values, houses typically offer greater and faster capital growth than apartments. As a result, investing in assets that provide the most long-term capital growth will help you pile up significant wealth.

2. Opportunities to renovate and subdivide

As the sole owner of the house, you can do any renovations you want to improve the house itself and increase its value. And in the case that you want to subdivide your land, you are free to do so without needing to request permission from the body corporate.

Cons of investing in a House

1. Price

It’s no doubt that houses are often more expensive than most apartments in the same area. Particularly in big cities like Sydney and Melbourne, this gap has grown tremendously over the recent year. So if you are looking to build up the diversity in your investment portfolio, buying a house might not be an optimal option.

2. Lower rental yield

A house will not be the best option if you need rental income because it offers lower rental yields than units. This is because, at the same price, you can afford a centrally located apartment but only a house in an outer suburb. And better location means more demand.

3. Maintenance costs and upkeep

A house with land is more difficult to maintain because you’ll be constantly mowing the lawn and caring for the garden, which can become quite costly over time.

price growth

Pros of investing in an Apartment

1. Affordable options

Apartments usually offer an affordable entry point for investors. Instead of buying a house at $1M, you can invest in 2 different apartments at $500k each. You have more flexibility if you have multiple assets. Concentrating a large portion of your wealth in one asset creates a lot of concentration risk, which may not be a good idea.

 2. Supply and demand

Over the past 25 years, the number of occupied apartments in Australia has increased by 78%, according to the most recent census. A trend is more prevalent in urban areas within Australia’s major capital cities.

And while apartments are often closer to the urban centre and offer facilities, they could not afford in a house. And more retail demand means higher rental yields.

3. Maintenance costs and upkeep

Apartments are much easier and less expensive to maintain than houses. Garden areas are usually common areas that the body corporate maintains. Even though you will have to pay body corporate fees, you will save a significant amount of money and time as an investor.

Cons of investing in an Apartment

1.  Lower land value

Again, apartments might offer lower capital growth due to a lower proportion of associated land. However, this is influenced by other factors such as location, market trends, and the condition of the property.

2. Lack of control

Because most apartments and units are part of a strata title, any changes or renovations must be approved by the body corporate. This lack of control can limit your ability to maximise the value and use of your property.

3. Future developments

If you own an existing apartment or unit in an oversupplied area, you may experience lower rental yield, renter demand, and capital growth.

buying an apartment

Tips for Choosing a Property That Will Appreciate in Value

Location

The first and foremost tip will be choosing an apartment with a good location. These are some factors that will decide whether your new investment choices will attract tenants:

  • Proximity to business hubs
  • Popular cafes, restaurants and shops nearby
  • Close to public transport
  • Close to school catchments
  • Safety of the suburb

Property aspect

Property experts always recommend that buyers should look for an apartment with plenty of natural light, views and practicality. North or northeast facing properties are considered the most desirable because they get the most direct sunlight throughout the day. East-facing homes might also enjoy lovely sunrises and full morning sun.

Property level

To decide which levels to go with, you should consider looking back at your target tenants. Young professionals may love a view from up high, so the 5th to 6th floor might be the best option. However, if you want to target young families with kids or pets, apartments with good access and safe on the first three floors will be in higher demand.

Parking adds value

Another way to increase resale value is to buy an apartment with parking. According to Domain research, parking can add up to $300,000 to the value of an apartment in high-value inner-city locations.

Builder quality

The quality of the construction is also something that you should carefully consider. Before buying an apartment, you need to do some research to compare the development to others on the market.

apartment owners

Conclusion

Compounding capital growth is a powerful investment attribute and the simplest and easiest way to build wealth. Therefore, you should always look for an asset that comes with longer-term capital growth.

However, while focusing purely on capital growth, you might be missing out on an opportunity to achieve similar investment returns with a similar purchase price. And at the end of the day, the quality of that property will determine your investment returns.

If you need more advice, contact 02 9099 3412 or check out Our News for more information on the property market.

Wollongong Development – A City On The Move

Lara Osborn on February 7, 2022

Being the third-largest city in New South Wales and renowned for its world-class steel making and coal mining industry, the city of Wollongong today is thriving with economic growth and positioned as a vital social and international trade hub.

It is impressive to see the strides that Wollongong has taken in the past few years. Continue reading to learn all about the evolution that Wollongong is currently undergoing.

History Of Wollongong

The name Wollongong, also known as “The Gong,” is said to be derived from the Aboriginal word “woolyungah,” which means “five islands.”

Located in the Illawarra region of New South Wales, Australia, Wollongong lies on the narrow coastal strip between the Illawarra Escarpment and the Pacific Ocean, 68 kilometres south of central Sydney.

The current local government area was formed on September 12, 1947, when the smaller councils of Wollongong, Central Illawarra, Bulli, and Northern Illawarra merged.

Wollongong development

Wollongong City Council

Wollongong has been developing at a tremendous speed in the past few years. Wollongong has great housing options, educational institutions and sweeping views.

It is the Wollongong City Council that controls how most land in the area is used, protected, or developed. This includes things like infrastructure, arranging big events, running a business, handling development applications or demolishing a building.

Wollongong City Council

Some Stats of Wollongong City Residential building approvals

The Wollongong City Centre is seeing an explosion in demand for inner-city living with the construction of various residential towers in and around the city centre.

There were 690 residential buildings approved to be built in Wollongong City Centre over the financial year of 2021 – 2022. In recent years, Wollongong has also seen $1.3B in investment with a further $600M in the pipeline. By 2036, the population in the city centre is forecasted to increase by over 20%, making it a great place for businesses seeking to grow or invest.

In terms of the office property market, The Wollongong CBD is experiencing strong growth, with around 70% uplift in A-grade office stock. This includes office space under construction or newly completed, plus further upgrades in the pipeline.

A New City Centre For Wollongong?

A new and exciting city centre will emerge as part of the Wollongong City Centre Urban Design Development.

The latest spotlight in Wollongong has been shining on the local news of WIN Grand delivered by the country’s largest regional television network owner and billionaire Bruce Gordon.

The WIN Grand project, bounded by Crown, Keira, Burelli, and Atchison Streets, will create a connected city centre with the goal of becoming Wollongong’s first Carbon Neutral Precinct and creating a dynamic work, live, play precinct that attracts both business and individuals to the city centre.

WIN Grand - Crown Street

The tallest Win Grand building with 39 floors will become the highest building in the city.

Proposed for the heart of Wollongong, the new project of WIN Grand is worth about $400 million, which will include recreational, commercial and residential spaces across three high rises. One of the towers, according to the project director Steve Turner, will be the tallest building in the city with 39 storeys.

Alongside the three residential towers, WIN Grand will boast co-working buildings and 50 new retailers including cafes, restaurants, bars and high street shopping.

There will also be a full-line cinema complex, a function and exhibition space; a live music/arts venue; and a health precinct complete with a gym, lap pool, spa, sauna and steam room available to the public.

Due for completion in 2025, this development will be the biggest Wollongong has seen since the iconic GPT Shopping Centre, a 55,000 sqm shopping mall on a 4.2-hectare site.

New development application

The project will significantly improve the current public domain and surrounding streets, while also achieving strategic planning goals such as job and housing growth.

With enhanced retail, leisure, and entertainment facilities and occupying an entire city block, the highly accessible and connected location will contribute to a stronger night-time economy.

wollongong development - win grand

With superior design quality, we can expect a vibrant new city centre with urban and modern infrastructure buzzing in the heart of Wollongong.

Destination Development Plan For Wollongong

Tourism has long been recognised as a major economic driver in Wollongong, contributing more than $1 Billion to the local economy with over 5 million visitors annually.

With an array of key assets including unique landscapes, Grand Pacific Way, stunning Wollongong’s beaches, proximity to surrounding regions and a diverse cultural community, Wollongong and the NSW South Coast is the third most visited region in NSW for travellers.

wollongong nsw - development application

Due to these key strengths and assets, Destination Wollongong, with strategic long term support of Wollongong City Council, is charged with delivering visitor economy growth for this coastal city.

By positioning Wollongong and the surroundings as the premier regional tourism, events and conference destination, the development plan is expected to turn Wollongong’s assets into world-class tourist facilities.

Under the development plan, the Wollongong tourism industry can be expected to steadily grow in the coming years.

New housing development for women in Wollongong

wollongong nsw

On top of all exciting new developments, a new housing site for women aged over 55 is officially open at IRT Kanahooka Retirement Village.

This new housing site, known as Jasmine Grove, has eight private, fully self-contained one-bedroom villas. Here, residents can also enjoy the amenities offered by the retirement community Henry Brooks Estate.

Jasmin Grove has recently won a national innovAGEING award for Improving Consumer Choice and an international award for Project of Year – Ageing in Place at the 9th Eldercare Innovation Awards 2021.

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Conclusion

One after the other, Wollongong has been completing developmental projects. At this rate, the city centre is predicted to grow both economically, but also in popularity. As a result, the property market in Wollongong is also expected to rise in the coming years.

Now is the perfect time to get your foot in the door to buy affordable housing and sit on future profits.

Stepping into the property market can be a confusing time. Give Liviti a call today at  (02) 9056 4311 to learn more about Wollongong’s property market.