Property investors in the box seat as the 2020 market kicks off

There are clear-cut signs of a recovery in property prices. Melbourne’s house prices have jumped 5 per cent in just three months, rebounding almost to the record levels seen in 2017.

The latest run of growth brings Melbourne’s median house price to $901,951 in the December 2019 quarter, adding $43,206 to the median price of three months earlier, according to the latest Domain House Price Report.

The record of $908,734 was set in the December quarter of 2017 – and it’s likely to be surpassed soon.

What does this mean for property investors, particularly those active in Melbourne’s inner-city and middle-ring areas, where properties are often worth significantly more?

With the New Year well underway, any investor should be across these critical criteria:

Consolidation
Real estate agents charge between 7 per cent to 15 per cent of the weekly rent to manage your property, with most charging around 8-10 per cent. You should consider consolidating your portfolio of investment properties, however small, with the one agency. This not only allows you to access potential discounts for a volume parcel of business, you’ll also get the peace of mind that comes with dealing with a single property manager.

Is it the right time to buy?
The growth spurt in prices since September, reported in CoreLogic data as well as in the Domain figures, is a firm indicator that now could be a good time to buy. In the last four months of 2019, Nelson Alexander saw an upward swing in the purchasing by investors of single-fronted cottages in inner-Melbourne. Baby boomer buyers were especially active, but “the good-value window” may not last for long.

Consider buying ‘new’
There are a lot of new apartments available, and a large group of tenants prefer “new” housing. Buy new, too, for the major depreciation benefits still available. Investors in established residential properties purchased after May 2017, can no longer claim depreciation on the plant and equipment assets installed at the time of settlement. But this doesn’t apply to those purchasing a new property, where owners can continue to claim for these items. It’s a significant benefit worth up to $58,000 in deductions over five years on a $650,000 unit.

Smoke alarms and safety
It’s crucial that your property meets basic safety standards. A Nelson Alexander property manager can help you meet new smoke alarm compliance laws and other safety must-dos affecting the gas and electricity supply. The company monitors the properties it manages very closely and inspects rental properties at least once every six months. Nelson Alexander also encourages tenants to promptly report any problem with their home, so that repairs and safety issues can be quickly addressed.

Regulatory changes
Tenancy laws have tended to favour landlords but that’s now changing. There are 130 impending reforms to Victoria’s Residential Tenancies Act, which will change the ballgame for some owners. The changes include a provision ensuring rentals meet “basic standards” by having functioning stoves, heating, deadlocks and safety measures. Under the changes, no-reason evictions will be scrapped, bonds will be capped at four weeks’ rent and rent increases limited to one a year rather than to six months’ previously. Other changes give tenants’ rights to have pets and make minor modifications to a building. If you’re unsure about any aspect of the RTA reforms, a good property manager is key to answering and anticipating any questions.

Tax and depreciation
You need depreciation reports for your investment properties so you can claim all the tax breaks that you’re entitled to. It’s best to get these straight after settlement. Nelson Alexander can provide you with information that a quantity surveyor can use to prepare a depreciation report. Remember that you only need to have a depreciation schedule prepared once, not every year as many people think – and the cost of doing this is tax deductible.