Is your property appreciating or depreciating?  Find out.

Over the recent history Australian property – particularly residential property – has tended to rise in value over the years. Often this has happened with little to no help from its owners.  Over the past decade we’ve seen huge growth in property prices driven by record low interest rates and strong demand. In fact, the total value of Australia’s 10.8 million residential dwellings was a whopping $9,901.60 billion as of the end of 2021.

Unfortunately, the economic conditions that saw house prices increase year on year have changed.  Interest rates have risen steeply, and will likely continue to rise. Housing demand is beginning to stagnate while people adjust to the new economic situation. And while everyone wants to believe that their home’s value is still rising, often it simply isn’t. Especially for homes that haven’t been updated or renovated recently.

So do you know if your own home is appreciating or depreciating in value? Here’s how to figure out property appreciation and depreciation. And the steps you can take to continue moving in the right direction.

What is property appreciation?

Property appreciation is simply the amount a property increases in value over time. When your home appreciates, it’s worth more money. That means you can rent it for a higher monthly rate, or sell it for a higher price.

When your property appreciates, it also raises the equity in the home. If you need to, you can access this money for improvements on the property or for any other purpose you like.

What is property depreciation?

Property depreciation, on the other hand, refers to a decrease in your home’s value. This can be caused by a number of factors:

• Interest rates and other economic impacts
• Lack of home maintenance or upkeep
• Fluctuations in the housing market
• Location demand changing
• Wear and tear on the property
• Sub-par or illegal renovations

Any of these factors can cause the value of your home to decrease. And when that happens the price you can sell it or rent it drops, as does your equity in the home.

Property Appreciation or Depreciation? What’s happening in your home?

It’s important to understand whether your home has appreciated or depreciated in value so you can understand your current financial position. It’s not a difficult task, but does involve you reaching out to a valuer and getting a home valuation.

Once you receive the current value of your home, you can then use a property appreciation calculator to determine the percentage that your home has appreciated.

How to calculate the percentage of property appreciation

The most straight forward method for calculating your home’s appreciation is to divide the change in your home’s value by the initial cost and then multiply this by 100.

Example 1

If your home was valued at $500,000 when you purchased it, and it’s now valued at $600,000, the change of your home’s value is $100,000. To find the amount of appreciation, you then divide the change in home value ($100,000) by the original home value ($500,000). This gives you 0.2. Multiply this by 100 to get 20% – the amount that your home has appreciated since purchase.

Of course, if you want to find out how much it’s appreciated in the last year, or in another time frame, you’ll simply need to know the valuation of the home from that time.

How to calculate the percentage of property depreciation

What if you have the new valuation done and the value of the property now is less than the value when you bought it? You can certainly determine the amount that the property has depreciated by using the same formula as set out above.

Example 2

Your home was valued at $500,000 when you purchased it, and now it’s valued at $450,000. So the change of your home’s value is $50,000. To find the amount of depreciation, you then divide the change in home value ($50,000) by the original home value ($500,000). This gives you 0.1. Multiply this by 100 to get 10% – the amount that your home has depreciated since purchase.

Depreciation of investment properties

Of course, if you have an investment property, depreciation works slightly differently. Tax allowances often make investment properties that are depreciating profitable, which can certainly work in your favour.

Also, the amount of depreciation you can claim for tax purposes is different than the true ‘value’ of the home. And property investors generally claim depreciation either through capital works deductions (the cost of building the investment property) or the ATO’s depreciating assets standards.

While tax breaks for depreciation are generally limited to investment properties, if you rent out rooms in your home, or use part of it for work, then you may be able to claim depreciation on those items as well.

How to protect your home from depreciating

1. Increase curb appeal
2. Clean and declutter
3. Make repairs as needed as quickly as possible
4. Maintain the driveway and paths for entrance
5. Keep roofs and gutters in good condition
6. Inspect and repair plumbing
7. Update your bathrooms and kitchen
8. Increase your energy efficiency
9. Increase your square footage through renovations

Speak to an expert

At Lending Loop, our expert team is here to help you with all your home and home loan questions. And that includes property appreciation and depreciation queries. Just contact our team today!