The Depreciation Gap: Why New Apartments Change the Sums for Melbourne Investors

For Melbourne investors comparing a brand-new apartment against an established one, the sticker price is only half the calculation. The other half sits in the tax return, where depreciation can quietly reshape the after-tax return over the years an asset is held. It is one of the least understood levers in residential investing, and one of the reasons new stock keeps its appeal even in a well-supplied market.

Depreciation lets investors claim the declining value of a building and its fixtures against rental income. Australian Taxation Office rules distinguish sharply between new and second-hand assets, and that distinction is where much of the difference lies.

Two kinds of deduction

Investment property depreciation falls into two buckets: capital works, covering the structure itself, and plant and equipment, covering removable fixtures such as appliances, carpets and air conditioning. On a new dwelling, both are generally available to the first investor. On an established property, changes to the rules in recent years mean investors typically cannot claim plant and equipment they did not themselves incur, narrowing the deductions materially.

Why the age of the building matters

Because capital works are claimed over decades and plant and equipment over shorter effective lives, a newly built apartment usually carries a larger depreciation schedule in its early years than an older equivalent. That front-loaded benefit is part of why some investors accept a lower headline yield on new stock, expecting the tax position to close part of the gap. A qualified quantity surveyor prepares the schedule that quantifies it, and individual outcomes depend on the investor's circumstances.

The interstate angle

The same rules apply wherever the property sits, which is one reason Melbourne investors weighing diversification look beyond Victoria. Tighter-supply markets such as the ACT, where rental vacancy sits near 1.2 per cent and gross yields commonly run 4.5 to 6 per cent, pair a rental profile with the depreciation profile of new construction. "Investors increasingly run the after-tax numbers, not just the yield," said Gaurav Pahwa of Apartment Collective, who works with buyers acquiring new apartments in Canberra. "On a new building the depreciation schedule is part of the story, and it is one many people only discover after they have already bought established."

New stock in the frame

Newly built projects are where the full depreciation benefit is available. The Lawson, a 244-apartment development beside Lake Ginninderra in Belconnen designed by Fender Katsalidis and built fully electric, is one example of the new, energy-efficient stock that carries both a fresh depreciation schedule and lower running costs than older apartments. Its first stage, Haven, is currently selling.

A number worth checking early

Depreciation should be modelled before purchase, not discovered at tax time. For investors comparing new against established, an estimate from a quantity surveyor and advice from an accountant turn an abstract benefit into a figure that can be weighed against price and yield. It rarely decides a purchase on its own, but it changes the sums often enough to be worth the exercise.

Inquiries through Apartment Collective: 1800 311 975 or hello@apartmentcollective.com.au

This article was compiled with reference to public market data and developer materials, and screened before publishing. See our editorial standards.