A Compelling Argument for Buying Property Interstate

The Smartline Report – September Edition

A Compelling Argument for Buying Property Interstate

Steve Laffey – NSW/QLD State Manager Development at Hindmarsh Development
September 2015

Property investment can be a complicated affair. With many aspects to take into consideration to help ensure you make the right investment choice; from location to lending, and market trends to surrounding infrastructure development, it’s often difficult to extend beyond the essential investment choices and begin to consider opportunities that when implemented, could stand to significantly increase your return.

Typically, property investors are well versed in the benefits of diversifying investments across several asset classes or property classifications. However, due to the lack of quality information available regarding the benefits of diversifying one’s investment portfolio over varying states, often little consideration is given to this potentially lucrative option.

Two primary benefits when looking at investing under this structure are: reducing the risk profile of one’s investment portfolio; and balancing long-term capital growth benefits with steady cash flow returns.

Outside of these primary benefits, there are a number of reasons outlined below as to why diversifying one’s residential investment portfolio could be of benefit.

Land tax benefits in purchasing interstate investment property

Land tax is payable on the purchase of investment property in all states and territories in Australia (other than the Northern Territory), and can constitute a significant sunk cost to a purchaser’s investment in property.

Each state also has a different threshold for land tax before it becomes payable as indicated in the table below.

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The land value of all properties purchased by an investor in one state will be aggregated for the purpose of calculating the investor’s land tax liabilities, and land tax will be payable on the value of all of the investor’s properties in that state which is over the prescribed threshold amount.

For example, if an investor purchased two houses in Queensland, the first for $700,000 and the second for $850,000, and the land value component of these purchase prices were $300,000 and $400,000 respectively, the land tax would be incurred on the total land value component of $700,000 which exceeds the threshold amount of $599,999 by $100,001.

Investors can take advantage of the thresholds by diversifying their portfolio of property investments across the states, so that land tax only becomes payable in one state where the aggregate land value of properties owned by an investor in that state exceeds the land tax threshold for that state.

Stamp duty rebates in the ACT on new property 

There are also some special advantages to investors looking to buy in the ACT. State and Territory Governments across Australia will often provide incentives to encourage the construction of new dwellings. The purchase of property within the ACT differs as, generally speaking, the property is leasehold rather than freehold.

The leasehold structure of the ACT means that stamp duty payable on the purchase of a property may be tax deductable for an investor.

Subsidiary benefits to investing in different states

There are a number of additional benefits to investing in this way, including but not limited to those outlined below:

Investors can take advantage of different property cycles. As the property cycle impacts each state and territory differently, there may be a slowdown in the growth of property values in some states or territories while others grow in leaps and bounds.

Investment across states provides geographical diversification to an investor’s portfolio. As a risk management tool, it protects investors against a downturn in the property market in one particular state or territory.

It can also diversify the return profile of an investment portfolio. For example, investing in Sydney may provide strong capital growth whereas investing in a city such as Adelaide may provide a higher yield.

Tax deductions on goods and services relating to the investment, such as interstate flights and accommodation, could be available to the investor.

Comparatively lower property prices in some states make investment more accessible/ achievable.

 

The data

Finally the data, as shown in the tables below, highlights that there is a compelling argument for diversifying property investment across states. Brisbane may not have the strongest capital growth, but is currently experiencing robust yields and a low entry price, while Sydney continues to enjoy capital growth.
Investors should always undertake their own due diligence, seek independent financial and legal advice, and research thoroughly before investing, but there is certainly merit in looking beyond your own home town and state when it comes to residential property investment.

Rent and yields (apartments)
As at 31 March 2015

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Source: Core Logic RP Data
Full market report here.

Capital growth rates (apartments)
As at 30 April 2015

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Source: Core Logic RP Data
Full market reports here.

www.smartline.com.au

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325

 

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.