C&G on: Land Value Appreciation

Market Updates

Most people understand that land appreciates in value, and buildings depreciate in value. Put simply, land is scarce in and around Melbourne, and dwellings (no matter how well constructed) deteriorate over time.

Proof of this lies in the tax benefits associated with purchasing brand new investment properties. Quantity surveyors provide ‘depreciation schedules’ that allow investors to claim tax credits associated with the wear of fixtures and finishes over their first few year. 

In and near the Melbourne CBD, many, many apartment blocks have been developed in recent years, and many more are in the pipeline for Inner, Middle, and Outer Melbourne. So much of successful Property Investment centers around Supply & Demand… As Unit Supply increases, will Demand for Units keep pace?

This graph shows how House and Unit Prices have changed over the last 10 years in Melbourne. It’s clear to the naked eye that year-on-year growth has been stronger for Houses than for Units. In fact, the average quarterly price growth has been 25% higher for Houses than for Units.

Units tend to provide a higher rental yield, and depreciation schedules for newly constructed properties offer decent tax savings, but if you’re looking for an investment property that will grow in value substantially over time, look first to its land size and location, and the relative supply of other comparable properties. These characteristics will drive future values more so than the general condition of the dwelling at time of purchase.