Ben Anderson outlines the benefits of acquiring residential property off the plan.
Investment in property has reaped handsome dividends for investors across the country. According to the latest Corelogic capital city data, property value gains were most concentrated in Sydney and Melbourne.
In July 2015, Melbourne property values rose 4.9 per cent, followed by Sydney at 3.3 per cent. Looking back over the past 12 months, Sydney values were up 18.4 per cent and Melbourne values up 11.5 per cent. With interest rates expected to remain low in the near future, the upward trend in property prices is expected to continue.
At Future Estate, we believe there are many advantages to buying properties off the plan. Whether you are an owner-occupier or investor, the benefits you can enjoy can be substantial.
Considerable stamp duty savings
Probably one of the biggest reasons for buying off-the-plan property is the potential for significant stamp duty savings. If you are a first-time homebuyer or investor, stamp duty adds a considerable cost to your purchase, so buying off the plan enables you to make significant savings.
Depreciation benefits
If you are buying an off-the-plan property as an investment and plan to lease your new property to renters, you will be eligible for significant tax deductions. It is advisable you get a full depreciation schedule from a quantity surveyor once your property settles. This will assist at tax time when claiming deductions for your new asset’s brand new fittings and fixtures.
Apartments typically allow for higher depreciation when compared to townhouses or stand-alone homes as common areas such as basement car parks, lifts and resident gardens are included in depreciation calculations.
Lower ongoing costs
A brand new off-the-plan property requires far less ongoing maintenance than an older property requires. This means a lower body corporate outlay is typically required for off-the-plan properties compared to similar but older properties.
Time
With a delay between purchase and settlement, buying off the plan maximises your opportunity to settle with equity.
Securing a valuable asset with low capital outlay for future potential capital gains
Buying off-the-plan properties allows you the flexibility to buy at today’s prices, where you only need a 10 per cent deposit today and can pay the balance of the purchase price at settlement, once it is built. Furthermore, you will be able to realise potential capital gains from only investing a small capital outlay.
It is also possible to use a deposit bond to defer the full payment of your 10 per cent deposit until settlement. For example, if you are an investor, instead of providing the full 10 per cent up front, you could fund 5 per cent yourself and get the other 5 per cent secured against your current residence. During settlement, however, you would need to provide the difference, whether it was in the form of cash or refinancing against the asset. In addition, you also earn interest on your deposit in the time from when you purchase an apartment to when it is completed, which is not always possible when purchasing an established dwelling.
Capital gains tax savings
The capital gains discount clock starts from the day you exchange contracts and pay the deposit. Should your circumstances change and you decide to on-sell prior to settlement, and provided you have 12 months between paying your deposit and on-selling, you may be entitled to a 50 per cent reduction on capital gains tax payable. Your financial adviser will best advise you on what tax benefits may be available, so always seek advice before making any decisions.