Middle Australia is buying into residential property

Middle Australia is buying into residential property
Middle Australia is buying into residential property

GUEST OBSERVER

More Australians than ever before owned a rental property and those relying upon negative gearing dropped, according to the latest ATO Taxation statistics release.

The 2013-14 year ATO taxation return statistics show a drop to 1.257 million people (or 62 percent) declaring a net rental loss out of the 2.03 million persons that own an Investment property.

The total amount of net rental loss declined from $12.04 billion to $10.97 billion which shows that more rentals across Australia were being positively geared than ever before.

There is a year on year decrease in the loss made by a rental with lower interest rates supporting this outcome. 

In the past 12 months, Australia has seen a substantial rise in the number of individuals with a rental interest, which is mainly due to the increase of middle Australia into the residential market.

In terms of additional investors, the numbers of individuals with a rental interest and a taxable income between $37,000- $80,000 has increased by 8,872 over the year, with those in this taxable income bracket hitting 707,282 individuals with a net rental interest.

The largest volume increase in overall investors came through an additional 42,362 individuals in the $80,001- $180,000 taxable income bracket. Middle Australia is clearly buying into residential property and this is the largest increase in net rental interest over the year. This taxable income group makes up 34.7 percent of all individuals with a net rental interest.

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Middle Australia is buying into residential property

In 2013-14 there was also a:

• 12.9 percent increase or a 9,029 additional individuals in the $180,001- $250,000 taxable income bracket with a net rental interest.

• 10.3 percent increase or a 5,023 additional individuals in the $250,001- $500,000 taxable income bracket with a net rental interest.

• 12.4 percent increase or a 1,431 additional individuals in the $500,001- $1,000,000 taxable income bracket with a net rental interest.

• 18.5 percent increase or an additional 729 individuals in the over $1,000,000 taxable income bracket with a net rental interest.

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Middle Australia is buying into residential property

There has been a clear growth in the number of lower to middle income earners that have joined the investment ranks over the past several years with those earning over $80,000 growing the largest in terms over the 12 month period.

Although the percentage increases in net rental interest at the higher taxable income ranges are the largest, their actual additional numbers are quite small compared to the lower taxable income brackets. The scale of investment in these higher taxable income brackets would be expected to be much greater than at the lower end.

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Middle Australia is buying into residential property

Total property investors increased by almost 67,000 persons over the year to surpass the 2 million mark for the first time. With an eye on retirement, 29,600 of these additional new investors were aged between 40-59.

In particular, low interest rates have seen Rent Interest deductions decline by around $1.08 billion on the previous year which reduces the number of investors making an annual loss on a property.

Also contributing to the positive gearing position, there was an increase in the total Gross Rental Return from all properties by around $2.19 billion compared to the previous year.

By age, younger investors are still the most likely to rely upon negative gearing with 82 percent of all property investors aged between 18-29 declaring a net rental loss.

All age groups except those over 70 saw a decline in the net rental loss with positively geared investment increasing across the age groups as investors get closer to retirement.

Some 13 percent of all persons across the country earning a taxable income under $80,000 had a rental property, whereas 26 percent of those earning over $80,000 per year had a rental interest. The likelihood of owning a rental increases as wages increase with 40 per cent of all those earning $500,000 -$1 million having a rental interest.

In vast numbers those earning in the lower tax brackets make up the largest proportion with a rental interest.

By income, 767,000 those declaring a taxable income under $80,000 made up 61 per cent of total net rent losses, with an average Net Rent Loss of $7,351 in the year.

Other Rental Deductions, which include deductable expenses on rental properties such as repairs, maintenance, cleaners, tradeswork, insurances and other costs paid out by investors to maintain a property, climbed by almost $1.4 billion from $16.99 billion to $18.38 billion over the year. 

Over the past 20 years the Other Rental Deduction category which reduces taxable income has grown from $4 billion to $18 billion per year, so there is clearly a shift in investment patterns around the repairs and maintenance which is beneficial for tenants, jobs and the economy.

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Middle Australia is buying into residential property

The rise in Other Rental Deductions shows that despite average Net Rental Losses declining, there is an increasing propensity from all investors to plough some of the gains from lower interest rates back into the property. With the negative gearing concession being a motivating factor, the increase in Other Rental Deductions provides incentive to maintain the rental yield by putting money back into keeping the tenant happy in a more competitive rental market.

With average rents starting to flatten in 2013-14 as growth that corresponded to rapidly rising property values in the previous decade subsides in parts of the country, the Other Rental Deduction investment is clearly supporting and sustaining the yield.

This increase in Other Rental Deductions by way of investment in Australian property stock would be a supporting boost for the base level trades and maintenance services on upkeep and would have provided a significant boost to jobs across these areas.

What generally has been overlooked when considering the ATO Taxation statistics in previous years is the increasing value to the economy for the trades, cleaners, gardeners, plasterers, chippies, sparkies, plumbers and others that come from the property investor that pays out when things break, need repair or maintained.  

What hasn’t been factored into account is that there has been strong growth in the numbers of those small handy trades that comprise a significant part of the property and construction workforce.

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Middle Australia is buying into residential property

The increase in foreign investment in residential real estate is becoming apparent in the 2013-14 year with an 82 percent increase in non resident investment in residential real estate compared to the previous years.

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Middle Australia is buying into residential property

Nicholas Proud is principal of Property and Construction Analytics Australia.

Tags: 
Negative gearing Rental market

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