The Block 2023: Why the properties appeal to investors

As The Block approaches auction day, the open for inspections have revealed how popular the season has been with fans. But what about those who will actually buy the homes?

Appealing to investors in particular has always been an important consideration for contestants on The Block. During this year’s season, House 4’s Steph and Gian were given valuable advice on how to entice this market segment.

The couple were the winners of the Domain Listings Challenge, and were rewarded with a $50,000 addition to their budget and an opportunity to talk to Domain chief of research and economics Dr Nicola Powell and national property editor Alice Stolz on how best to spend it. 

Powell emphasised the importance of considering the investor segment and understanding what exactly might appeal to them. 

“You can’t forget that segment, and what the investor looks for is depreciation, it’s tax purposes,” she said. 

“So the home that has the largest depreciation schedule will likely have the greatest interest from investors.” 

Depreciation schedules are created by quantity surveyors. They are comprehensive reports that put together the construction costs and asset value of a property against the depreciation value that comes naturally with ageing and the gradual deterioration of a property. 

Deductions can come from what the Australian Taxation Office (ATO) classifies as “plant and equipment”, which are easily removable assets, such as blinds, light fittings and carpets. They can also come from any wear and tear of the property’s structure, and permanently attached assets like hot water systems.

As the owner of a property for investment purposes, you can claim deductions for its decline in value over time. 

All of the houses on this series of The Block have substantial depreciation tax deductions, according to BMT Tax Depreciation chief executive Bradley Beer.

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He revealed the total depreciation deductions of all properties together were more than $23 million.

“Eliza and Liberty’s house, or House 5, generated the highest total deductions, estimated at $4,996,640,” he says. “Their first full financial year deduction was $173,860.”

“The other properties aren’t far behind, with an average of $4,630,874 in total depreciation deductions, and an average of $145,079 in the first full financial year.

“Because these properties have been substantially renovated, both plant and equipment depreciation and capital works deductions are eligible to be claimed, making them very enticing to the investor.”

With a large amount of investor interest expected on auction day this year, Beer says the financial benefits will be big.

“It can greatly boost an investor’s cash flow through the associated tax deductions,” he says. “Reducing tax liabilities will be part of an investor’s strategy and with these schedules, the outcome will be fantastic for the new owners.”

When show co-host Shelley Craft asked Domain’s experts about where the contestants should spend money for the largest depreciation, Stolz said, “It might be investing in a piece of art.”

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The ATO considers works of art to be depreciating assets, with a useful life of 100 years. For that reason, you could claim around 2 per cent a year for any art purchased.

Another example from the experts was investing in sustainability, specifically solar panels. 

Their installation on a property could allow investors to claim 5 to 10 per cent of the cost of installation each year.

Once a property has been bought by an investor, any improvements made by the owner will likely have further tax benefits too.

However, James Price of Hudson McHugh says a lot of investors in the current market are looking for “set and forget” properties. 

They aren’t interested in new builds, he says, but they don’t want something old and untouched either. 

Just as The Block houses are renovated and improved homes from the 1950s, properties from around the same time, with modern improvements, are where the interest currently lies. 

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“Investors want to see bathrooms and kitchens that have been improved upon in these types of homes,” he says. 

“I think the way savvy investors will look at it is, they will say, ‘What’s going to cause me a headache later on?’ and if those things are well managed before the sale then the more likely there will be success with it.” 

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