Since our last podcast took us to Russia, we thought we’d stay a lot closer to home with this week’s.
A story in the Australian newspaper caught our eye, concerning growing signs that investors are prepared to mothball their brand-new, off-the-plan apartments.
Rather than put their units on the market when both rents and property prices are in a downward spiral, some investors are locking them up until prospects improve.
How can this make financial sense? Well, it may be a massive and totally legal tax dodge.
If they have zero income, through no rent, and it isn’t their home (because no one lives there) then they are going to make maximum bucks on their negative gearing. All their costs like rates and levies can be set against their other income.
Not only that, they may also receive huge tax breaks on various aspects of depreciation, all the time the apartment is sitting gathering value when the market starts to turn.
According to property depreciation experts Washington Brown, purchasers of an $850,000 unit could save $135,000 in depreciation allowances in ten years.
Now, I’m no tax expert but, even assuming it takes five years for the market to get back to where it was, adding depreciation and negative gearing allowances, and taking into account average sized levies, the ghost apartment owner could save about $100,000 in tax breaks in that time.
And then in five years, he or she has a brand new apartment to sell or rent at something approaching the value they paid for – and all for doing nothing except switch off the lights.
It’s a gamble but not as much as it seems at first.
Meanwhile, our state government supports the idea of scrapping negative gearing. Wonder how they’ll feel about tax breaks encouraging investors to shutter new homes that should be available for families.
By the way, Sue Williams and I don’t even get to the tax issue in our podcast, but we do discuss the social and economic implications for all the people who actually live in these “ghost” blocks.
You can hear it here:
And if you missed my monthly session with James Valentine this week, you can hear that HERE.
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