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miw54

So many empty houses

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We are in the process of moving back to Oz and looking to buy a house on the Gold Coast. I am amazed at the number of houses that are standing empty and wonder why this can be. Some of them are beautiful and clearly had a lot of money spent on them. I currently have a about 15 properties saved that I would like to view when I get there but the majority of them are empty. I wonder where the owners have gone and why they have left before selling. No doubt I will find out when I get there but just wondered if it was confined to the Gold coast or a general pattern.:confused:

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I have always suspected that these properties are owned by landlords. The tenant has left, the owner has cleaned it up and the house is up for sale with vacant possession. This would explain the absence of furniture.


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Agree with @Gbye grey sky as I have seen the same in Perth whilst looking and it makes me wonder how many people just buy properties to rent out.......


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Agree with @Gbye grey sky as I have seen the same in Perth whilst looking and it makes me wonder how many people just buy properties to rent out.......

 

A lot of Australians do, it's a great tax lurk in Australia. When you buy a house or flat to rent out, you obviously get rent which counts as income. However, you only get taxed on the profit after you've deducted all your expenses - mortgage interest, agent's fees, maintenance and depreciation. Depreciation isn't a "real" expense - it's a notional figure to reflect wear and tear on the property. So basically you get a deduction for money you've never spent. It can be a large amount - enough to completely wipe out your profit as far as the taxman is concerned. I've had an investment property for many years and while I was working, I got a tax refund every single year of between $5,000 and $10,000. All thanks to depreciation!

 

Depreciation is a percentage of the building cost of the home and its fixtures/fittings, and it's highest when the property is brand new - after five years it drops down to a much lower level. So a lot of people buy a brand new property, hold it for five years, then sell it and buy another one. That's why you often see a flood of new properties on the market when a development is about five years old. It's actually not the best strategy, but some people get so obsessed with not paying tax, they don't think about anything else!

 

One big problem is that there are a lot of shonky property schemes, teaching people to take advantage of this to "build wealth". Often they're in league with developers, and sell over-priced new developments - especially in Queensland - to naive investors. Then people realise they can't afford them because the mortgage is too high, and wiping out any profit even with depreciation, so they end up back on the market.


Scot by birth, emigrated 1985 | Aussie husband applied UK spouse visa Jan 2015, granted March 2015, moved to UK May 2015 | Returned to Oz June 2016

"The stranger who comes home does not make himself at home but makes home itself strange." -- Rainer Maria Rilke

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A lot of property has also been purchased by overseas landlords as well hence they are vacant as they want to sell them when they realise they cannot manage the debt loads.

 

I also think that the sellers are being unrealistic with prices and that is why they are staying on the market, just because they bought at the top of the market does not mean that other buyers are willing to pay the prices now.


Petals

:ssign15:taking no prisoners :wink:

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A lot of Australians do, it's a great tax lurk in Australia. When you buy a house or flat to rent out, you obviously get rent which counts as income. However, you only get taxed on the profit after you've deducted all your expenses - mortgage interest, agent's fees, maintenance and depreciation. Depreciation isn't a "real" expense - it's a notional figure to reflect wear and tear on the property. So basically you get a deduction for money you've never spent. It can be a large amount - enough to completely wipe out your profit as far as the taxman is concerned. I've had an investment property for many years and while I was working, I got a tax refund every single year of between $5,000 and $10,000. All thanks to depreciation!

 

Depreciation is a percentage of the building cost of the home and its fixtures/fittings, and it's highest when the property is brand new - after five years it drops down to a much lower level. So a lot of people buy a brand new property, hold it for five years, then sell it and buy another one. That's why you often see a flood of new properties on the market when a development is about five years old. It's actually not the best strategy, but some people get so obsessed with not paying tax, they don't think about anything else!

 

One big problem is that there are a lot of shonky property schemes, teaching people to take advantage of this to "build wealth". Often they're in league with developers, and sell over-priced new developments - especially in Queensland - to naive investors. Then people realise they can't afford them because the mortgage is too high, and wiping out any profit even with depreciation, so they end up back on the market.

 

Thanks for this. I was familiar with negative gearing in Oz but struggled always to understand how the Maths actually worked. That explanation of depreciation explains everything and I can now see why so many commentators see this as a mad tax concession. It is not negative gearing as such that is the issue but this phoney depreciation calculation creating a type of Ponzi scheme for residential property. It should in theory create an artificial over-supply leading ultimately to a major correction however an over-supply is not evident yet (to me anyway). Brisbane is where we are bound so I am interested to know why you consider that over-priced developments are especially prevalent in Queensland.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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Agree with @Gbye grey sky as I have seen the same in Perth whilst looking and it makes me wonder how many people just buy properties to rent out.......

 

 

Bit of bad poop if they do at the minute, Perth rental prices are down and staying down to use a food chains catch phrase:wink:

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I was familiar with negative gearing in Oz but struggled always to understand how the Maths actually worked. That explanation of depreciation explains everything and I can now see why so many commentators see this as a mad tax concession. It is not negative gearing as such that is the issue but this phoney depreciation calculation creating a type of Ponzi scheme for residential property.

 

It's not really a Ponzi scheme - in fact it makes logical sense in a way, because the fabric of the building is depreciating, and one day the landlord is going to have to refurbish it. For instance, after a few years I had to repaint and replace the carpets in my unit (you can't claim that kind of thing against expenses). However it does ignore the fact that the property is increasing in value all the time too, so even if you do have to carry those costs, you're still making a profit.


Scot by birth, emigrated 1985 | Aussie husband applied UK spouse visa Jan 2015, granted March 2015, moved to UK May 2015 | Returned to Oz June 2016

"The stranger who comes home does not make himself at home but makes home itself strange." -- Rainer Maria Rilke

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A lot of Australians do, it's a great tax lurk in Australia. When you buy a house or flat to rent out, you obviously get rent which counts as income. However, you only get taxed on the profit after you've deducted all your expenses - mortgage interest, agent's fees, maintenance and depreciation. Depreciation isn't a "real" expense - it's a notional figure to reflect wear and tear on the property. So basically you get a deduction for money you've never spent. It can be a large amount - enough to completely wipe out your profit as far as the taxman is concerned. I've had an investment property for many years and while I was working, I got a tax refund every single year of between $5,000 and $10,000. All thanks to depreciation!

 

Depreciation is a percentage of the building cost of the home and its fixtures/fittings, and it's highest when the property is brand new - after five years it drops down to a much lower level. So a lot of people buy a brand new property, hold it for five years, then sell it and buy another one. That's why you often see a flood of new properties on the market when a development is about five years old. It's actually not the best strategy, but some people get so obsessed with not paying tax, they don't think about anything else!

 

One big problem is that there are a lot of shonky property schemes, teaching people to take advantage of this to "build wealth". Often they're in league with developers, and sell over-priced new developments - especially in Queensland - to naive investors. Then people realise they can't afford them because the mortgage is too high, and wiping out any profit even with depreciation, so they end up back on the market.

 

Very true. The sooner that is brought under control the better for all Australians, especially those hoping to get into the housing market. Only three countries have this crazy policy in the world. One of the others being Canada is experiencing the same run away housing inflation.

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It's not really a Ponzi scheme - in fact it makes logical sense in a way, because the fabric of the building is depreciating, and one day the landlord is going to have to refurbish it. For instance, after a few years I had to repaint and replace the carpets in my unit (you can't claim that kind of thing against expenses). However it does ignore the fact that the property is increasing in value all the time too, so even if you do have to carry those costs, you're still making a profit.

 

In other countries it's called care of ones property and not a tax lurk. Property does not increase all the time but take your point. A tax on appreciation?

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Bit of bad poop if they do at the minute, Perth rental prices are down and staying down to use a food chains catch phrase:wink:

 

Next the house prices down to use a food chains phrase.

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In other countries it's called care of ones property and not a tax lurk. Property does not increase all the time but take your point. A tax on appreciation?

 

Capital Gains Tax, in other words. But of course, there's another massive tax break on that when it comes to property

:)

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In other countries it's called care of ones property and not a tax lurk. Property does not increase all the time but take your point. A tax on appreciation?

 

I agree with you, there is wear and tear and it's a cost to fix it, so it is logical in a way. However it goes too far IMO - the result is that I've never paid a cent of tax on my rental income, ever! Whereas if there was no depreciation allowance and I'd had to claim the actual repair expenses instead, I would've paid quite a bit of tax.

 

Thje other downside of the depreciation "lurk" is that there's a disincentive for landlords to maintain their properties properly - if they spend money on repairs and improvements they can't claim them directly.


Scot by birth, emigrated 1985 | Aussie husband applied UK spouse visa Jan 2015, granted March 2015, moved to UK May 2015 | Returned to Oz June 2016

"The stranger who comes home does not make himself at home but makes home itself strange." -- Rainer Maria Rilke

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I agree with you, there is wear and tear and it's a cost to fix it, so it is logical in a way. However it goes too far IMO - the result is that I've never paid a cent of tax on my rental income, ever! Whereas if there was no depreciation allowance and I'd had to claim the actual repair expenses instead, I would've paid quite a bit of tax.

 

Thje other downside of the depreciation "lurk" is that there's a disincentive for landlords to maintain their properties properly - if they spend money on repairs and improvements they can't claim them directly.

 

 

That's just silly? They cannot claim repairs? The world is mad.


Nearly there! Don't drop the ball now guys! Vaccines are weeks away. Stay safe!

 

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That's just silly? They cannot claim repairs? The world is mad.

 

They can claim repairs. Depending on what the repairs are (and what they cost) they may be deductible immediately.

 

It's 'repairs' that are really capital expenditure that cannot be claimed immediately but must be deducted over a varying period.

 

For example a genuine repair to an air-conditioning unit (say) can be claimed in the tax year in which it is paid.

However a new air-conditioning unit to replace a broken one is not a repair but capital expenditure so must be deducted over 10-12 years.

 

This is all standard accounting procedure worldwide. It's certainly nothing peculiar to Australian investment properties...

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It's not really a Ponzi scheme - in fact it makes logical sense in a way, because the fabric of the building is depreciating, and one day the landlord is going to have to refurbish it. For instance, after a few years I had to repaint and replace the carpets in my unit (you can't claim that kind of thing against expenses). However it does ignore the fact that the property is increasing in value all the time too, so even if you do have to carry those costs, you're still making a profit.

 

If it was related to the building fabric wearing then relief would be minimal in the first few years but increase as a property aged. If you are front-loading the relief in the first few years it can only be to artificially stoke a market for new builds. Dangerous because as with all Ponzi schemes some are left holding the over-valued asset at the end.

 

You also get the relief it seems whether you spend money to maintain the fabric of the building or not which also makes little sense as it is encouraging people to knock down homes which are not very old and replace with a new one.


Timeline: 309/100 Sent 7/8/13, Money Taken 9/8/13, CO appointed 3/9/13. Med 3/12/13. Police check 4/12/13. VISA GRANTED 8/4/14, Subclass100. Recce August 2014. Arrived 30 July 2015.

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This is all standard accounting procedure worldwide. It's certainly nothing peculiar to Australian investment properties...

 

Correct in the case of depreciation for capital expenditures (but as ever tax jurisdictions vary in what they consider to be capital improvements, usually as the result of precedent set in cases) - but there are plenty of other tax rules in Aus that particularly favour investment in property, that's one of the reasons it's so widespread here.

 

Lots of those rules have unintended consequences too. Quite a few empty houses is one of them, as per the OP. As are properties where no money has been spent except "repair it when it breaks" style "maintenance" for a decade or more

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properties where no money has been spent except "repair it when it breaks" style "maintenance" for a decade or more

 

That's the point I was trying to make. I didn't explain to avoid complicating things.


Scot by birth, emigrated 1985 | Aussie husband applied UK spouse visa Jan 2015, granted March 2015, moved to UK May 2015 | Returned to Oz June 2016

"The stranger who comes home does not make himself at home but makes home itself strange." -- Rainer Maria Rilke

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Bit of bad poop if they do at the minute, Perth rental prices are down and staying down to use a food chains catch phrase:wink:

 

All depends where you want to rent PB. The rental market is still pretty buoyant and good rental properties in nice areas are still expensive.

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