Granny flats are becoming popular investments
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Data collected by BMT Tax Depreciation, Australia’s leading tax depreciation specialist, indicates that in the 2016-2017 financial year there was a 22 per cent growth in the number of schedules requested for granny flats nationwide.
Of the states Queensland, Western Australia and New South Wales saw the highest growth in the number of depreciation schedules requested for this type of property.
“Key growth areas in New South Wales which stood out in terms of the number of depreciation schedules requested during 2016-2017 when compared with the previous financial year included the Central Coast with a 105 per cent increase, Wollongong with a 150 per cent increase and the Blue Mountains with a 150 per cent increase,” Mr Beer said.
“In Queensland South East Brisbane saw a 275 per cent increase, Caloundra a 400 per cent increase and Cairns a 150 per cent increase in schedules requested for granny flats during 2016-2017 while Greater Perth and Mundaring in Western Australia both saw a 200 per cent increase in requests,” said Mr Beer.
BMT believe the increase in depreciation schedule requests for granny flats is an indicator that investors are looking for affordable alternatives given recent increases in median house and unit prices, particularly in the capital cities. It could also be due to the fact that investors are trying to increase the rental yields they can earn.
“The Australian property market has recently experienced a period of strong capital growth. However, this has been offset for many investors by a fall in the indicative yield of their portfolios,” Mr Beer said.
“This has led many investors to consider creative means to boost their portfolio’s yield, such as the addition of a granny flat which can be constructed for around $121,000 and rented at a rate achieving around a 15 per cent yield annually,”
“This is far higher than the rental yield typically achievable on a house or unit in Australia, making granny flats an interesting investment proposition,” Mr Beer said.
The Affordable Rental Housing – State Environmental Planning Policy which allows New South Wales property owners to rent their secondary dwellings came into place in 2009 and since then there has been a steady increase in the number of investors choosing to build and rent out granny flats.
Research data from Flatmates.com.au shows that there was a 16 per cent increase in granny flats being listed on the site during 2016, while searches for granny flat accommodation increased by 84 per cent during the last quarter of 2016 alone.
However, Mr Beer warns investors to do their research so they are fully aware of the rules and restrictions set by local councils and state governments before deciding to build a granny flat for rental purposes.
“Each area provides regulations regarding the minimum land size and maximum plot size required for granny flats or secondary dwellings,” he said.
“In some states and specific council areas there are rules which mean that investors are not able to rent their granny flats for income producing purposes,”
For those who rent out granny flats it is also important to seek advice from a specialist Quantity Surveyor to discover what depreciation deductions they can claim.
“There are significant depreciation deductions available on these types of properties, which investors might not be aware of,” said Mr Beer
“The average first year depreciation deduction on a granny flat is $5,288, while over five years these deductions can add up to around $23,713,” concluded Mr Beer.
Property investors should also be aware of proposed changes to the depreciation of plant and equipment assets announced in the recent federal budget.
* Under new legislation outlined in the Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 passed by Parliament on 15th November 2017, investors who exchange contracts on a second-hand residential property after 7:30pm on 9th May 2017 will no longer be able to claim depreciation on previously used plant and equipment assets. Investors can claim deductions on plant and equipment assets they purchase and directly incur the expense for. Investors who purchased prior to this date and those who purchase a brand-new property will still be able to claim depreciation as they were previously. To learn more visit www.bmtqs.com.au/budget-2017 or read BMT’s comprehensive White Paper document at www.bmtqs.com.au/2017-budget-whitepaper.
There have been no changes to the rules around claiming capital works deductions for the building structure.
For more information on property depreciation and what deductions you can claim from your investment property, visit the residential property depreciation page on the BMT Tax Depreciation website. Alternatively, you can contact the expert team at BMT on 1300 728 726 for obligation free advice.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.
Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia wide service.