Depreciation statistics give insight into the latest property market trends
The Australian property market has proved resilient throughout the pandemic. Almost 460,000 property transactions took place across the country between January 2020 and January 2021. Despite 2020’s travel and social distancing restrictions, the transaction figures are comparable with the prior five years.
Three interesting themes also emerged last year.
The first was around ‘internal migration’, the trend to move from cities to regional areas. As the effects of lockdowns were felt, city dwellers (primarily in Melbourne and Sydney) packed up and headed for regional areas.
The trend was evident in property market statistics. Amid the pandemic, four out of eight of the capital cities experienced declines in house prices, but only two regional areas were impacted. It has taken capital city housing values more than a year to perform against the regional markets.
It wasn’t just owner-occupiers who realised the benefits of regional property. PIPA’s 2020 Annual Investor Sentiment Survey reported that 22 per cent of property investors find regional markets the most appealing, up from 15 per cent in 2019.
This preference is also apparent through the tax depreciation schedules ordered throughout FY 2020/21.
Compared to the previous financial year, there was a percentage rise of 3.73 per cent in tax depreciation schedules ordered for homes in regional areas. Meanwhile, 68.45 per cent of total schedules ordered were for properties in capital cities. Although this is still higher than their regional counterparts, it’s a clear drop from the previous financial year (72.18 per cent).
But one factor that has remained consistent across both geographies is the beneficial depreciation deductions available.
The average FY 2020/21 first full year depreciation claim for properties in capital cities came to $8,227, while the regional property average first full year depreciation deduction came to $9,847. Much of this comes down to the size and type of property available in regional areas compared to metropolitan ones.
The divergence between unit and house markets has also been an interesting element of the pandemic-influenced property market.
Some analysts predict an overwhelming surge of apartment stock in the Sydney and Melbourne CBDs, as investors look to alternatives due to poor rental demand. While recent reports have uncovered that for the 12 months until January 2021, 74.2 per cent of property transactions were for houses, up from 73.2 per cent the previous year.
An evaluation of BMT Tax Depreciation schedule data revealed that investors ordering schedules are following this trend. The number of residential schedules completed for houses in FY 2020/21 was up 2.87 per cent compared to the previous financial year which means a drop in the percentage of unit schedule orders.
Despite the preference for houses over units, data shows that units can produce higher deductions. The average first full year deduction from schedules completed for houses in FY 2020/21 was $7,705, while the average first full year deduction found for units was $9,716.
Soaring property prices have dominated the media for the past 12 months, with CoreLogic’s national home value index for March 2021 rising at its fastest pace since 1988.
The latest housing boom was originally driven by owner-occupiers. ABS data revealed that in March 2021, $22.4 billion of new housing finance came from owner-occupiers, but investors only made up $7.8 billion.
However, investor lending is bouncing back. ABS data reported that the value of investor loan commitments rose 116 per cent in the year to May 2021, after falling to a 20-year low in May 2020.
But what impact has investor buying had on property prices?
The data below highlights the difference between the mean (or average) dwelling values across the country, compared to the mean purchase price of properties that BMT completed depreciation schedules on in the last financial year. All of the BMT properties are for investors.
Mean ABS dwelling price as at the March 2021 quarter. Mean property price from BMT Tax Depreciation Schedules are for properties where schedule order and property settlement occurred in FY 2020/21.
In most states and territories (all except houses in Queensland and the Northern Territory) the ABS mean dwelling price for the March 2021 quarter exceeded the corresponding mean BMT Tax Depreciation Schedule house and unit price for FY 2020/21.
From this data alone, it can be argued that investors-buying isn’t the main contributor to rising dwelling prices. However, the coming months will provide further insights on how the current property boom will pan out for both the owner-occupier and investor markets.