Mitchell Brandtman’s thoughts go out to everyone impacted by Cyclone Debbie and the resultant deluge that hit South East QLD and Northern NSW yesterday. Our team have been on the ground this morning assessing the impact to our sites and are in the process of contacting clients to offer any assistance.

For those that can’t get out to sites, a general update and some feedback from site:

– So far the majority of sites that were out of the ground have only suffered minor storm damage and water ingress and will dry out over the weekend however there are numerous sites across the South East with flooded basements and excavations

– Only a small number of sites are reporting significant damage

– The Gold Coast has been hardest hit so far with site flooding – some units are viewing water a lot closer than planned

– Subbies are back onsite at approx. 75% of sites

– Most cranes in Brisbane are not working today due to wind

– Multiple reports of site and safety barriers blown over and in the process of being repaired

– Scaffolding teams have been working since midnight fixing loose scaffolding and inspecting bases positioned on water-logged ground

– Pumps and tankers are in demand and are working away at numerous sites

– Developers and Contractors are all dusting off their contracts and reading the fine print on rain (and the effects of rain) delays

– We are hearing 2-10 days clean up time in general, however the worst impacted sites could be significantly longer

– There has been a change in recent years for Contractors on larger projects to take on the risk of all rain delays – check your contract

– Generally Developers will wear the time delay and contractors the cost of the clean-up, however the extent and definitions will vary between contracts

– Contractors are generally still entitled to be paid for work completed but damaged in the storm – insurance may be available to offset the impact to the contractor of repairing the damage but the impacts of this are outside of the contract progress claim process

– Civil contractors are busy calculating the damage and maybe be considering if self-insuring was the way to go

– Body Corporates are busy marking up water leaks and are already on the phone to builders’ maintenance teams – this the biggest rain event that many newly constructed buildings have experienced

– Contractors that were already under stress didn’t need this

Stay dry and if you have any questions don’t hesitate to call one of the team 1800 808 289. Here are a few photos of our sites today.

As current market tenders become more competitive and harder to win, developers and contractors are looking toward innovative technology in order to streamline the entire tender process. In today’s Urban Developer, Matt Hemming Partner, Mitchell Brandtman, shares his knowledge on this topic.

Technology such as Building Information Modelling (BIM) – especially 5D and 4D BIM – allows developers insight into project time, cost and quality. All elements that can be the critical difference between delivering a project on time and on budget.

In the tender phase, a developer can utilise BIM technology to provide contractors and subcontractors with 3D design models that help them understand the project and create a more accurate, reliable, cost-effective and certain tender.

Accuracy

Since BIM’s deliver a digital representation of the physical and functional characteristics of a project, the accuracy this technology provides is almost second to none.

With a digital representation of the project, the high level of detail allows contractors and subcontractors to accurately estimate the elements of the project to deliver tenders that will be true to the realities of the build – making for a highly competitive market tender.

In February 2017, the Queensland Government released the Building Information Modelling – draft policy and principles for Queensland with a request to read and provide feedback here.

This is a long awaited step forward taken by the Queensland Government. Mitchell Brandtman wholeheartedly supports this initiative and what it can mean for the Queensland development and infrastructure landscape.

In reading through the draft it is clear that the Queensland Government has a positive purpose for the implementation of BIM and understands the potential for their future assets and for the industry as a whole.

With Mitchell Brandtman being BIM advocates for well over a decade now, this initiative is encouraged and celebrated and we cannot help but to reflect on the journey that Queensland has travelled to get to this point.

Prior to 2013, the Queensland Government’s professional design and building department, Project Services, was actively engaging in BIM discovery and implementation in close consultation with the private sector. On the Quantity Surveying front, a small working group was established made up of public and private sector, including Mitchell Brandtman, and was meeting regularly to brainstorm collaboration platforms, frameworks and protocols for projects. With the Queensland Government leading by example in BIM development at that time, good headway was made which encouraged the private sector, in at least the QS space, to engage more with BIM and the various disciplines it involves. We also expected a document such as this would come sooner given the momentum at that time, which further pushed industry to listen closely.

This momentum came to a grinding halt late 2012 with the then new Government redeploying many government jobs including within the Project Services department.

But the private sector carried on, pushing the boundaries of BIM and collaboration further, overcoming many of the teething problems of a new workflow in a very staunch industry. So Government is well positioned to now leverage off this progress both locally and internationally, by this re-engagement with the private sector. We are ready, well most of us are… after all, nothing drives change like a looming mandate.

We note that buildingSMART have publically released their draft response to the document here.

Reading through their response, we entirely agree with their recommendations.

This is a great initiative, which Mitchell Brandtman supports entirely. We are working on a formal response to the Queensland Government and encourage any discipline that advocates positive change to have their say too.

Be sure to join us at this Urban Developer event across QLD, NSW and VIC, whereby the Partners of Mitchell Brandtman, in association with Development Finance Partners and Hall Chadwick will provide an in-depth look into Navigating The Funding Maze: What Developers Can Expect From Bank and Non-Bank Lenders in 2017.

As Australia’s development sector moves through an unprecedented construction boom, the availability of property and construction credit has contracted. 

The void left by traditional sources of development finance, such as the major banks, is being partly filled by non-traditional financiers, such as private lenders, pension funds and non-bank commercial lenders.

But what does this all mean for developers and investors, big and small?

How can property developers ensure that their projects are successfully funded in this next cycle?Event attendees can expect to hear opinions and insights into:

• What can developers and investors expect from bank and non-bank credit providers in 2017?
• What are the major challenges facing the availability, terms and cost of project finance?
• What strategies can developers and investors employ to ensure success?
• What new sources of funding exist in the market place and what are their terms?
• What tax strategies can developers and investors employ to optimise?
• How are construction costs and contract terms impacting financier’s appetite for lending?

Who should attend the event?

• Residential, commercial and retail developers
• Residential, commercial and retail investors
• Banks, brokers and financial institutions
• Real estate agents and marketers
• Planning and government authorities
• Architects and design professionals
• Engineering and construction providers

Click to Register for this Event
The speakers from the Team at Mitchell Brandtman include:

Maoibh Russell, Partner / Mitchell Brandtman

Maoibh is a Partner with Mitchell Brandtman and is a Manager of the Financiers’ Quantity Surveying Team in QLD. With over twenty-two years’ experience, Maoibh’s market intelligence and knowledge of the industry has seen her invited to speak at various conferences and industry forums both here in Australia and across the globe.

Maoibh offers a solid basis of expertise in all areas of construction and development, particularly for projects in the residential, commercial, infrastructure and industrial sectors and is currently the lead QS advisor for the public realm component of the $3 Billion Queens Wharf project.

Andrew Opperman, Partner / Mitchell Brandtman

Andrew is a Partner with Mitchell Brandtman and a Director of the Financiers’ Quantity Surveying Team and Asset Management Team in NSW. With over 12 years’ experience, Andrew has worked on a variety of diverse projects from residential, commercial, industrial, aged care and hotels, to name a few.

After completing a degree in Bachelor Economics, Human Resource Management, Andrew decided the Property Industry was his passion and then completed a degree in Bachelor Building Construction Economics.

Andrew has been with Mitchell Brandtman for over 10 years and his key roles include the preparation of Finance Reports, Cost Planning, Estimating, Post Contract work and Expenditure Control. Andrew has also been involved in numerous expert witness and securities of payment claims and has a vast experience in all types of projects in the construction industry.

Darryl Bird, Partner / Mitchell Brandtman

Darryl is a Partner with Mitchell Brandtman and is the National Manager of the Financiers’ Quantity Surveying Team. With over twenty-three years’ experience, major banks and developers have come to depend on Darryl’s expertise in identifying and managing construction risk.

His expertise is in the area of financial due diligence, drawdowns and construction contract administration services. Darryl is regularly invited to share his knowledge at industry events and workshops both throughout QLD and interstate.

Darryl has a reputation for a highly professional results-driven approach and has led project teams on some of the firm’s largest and most challenging construction projects.

Access to development funding is an integral part of the property development process given the industry is so capital intensive. Capital has become harder to secure since the global financial crisis and in more recent times an unprecedented construction boom. Now more than ever it’s become important for developers to have a clear understanding on how to secure funding and satisfy the requirements of lenders

With the contributions of Michael Ivey, C.E.O and partner at Mitchell Brandtman and Matthew Royal, co-founder of Development Finance Partners; The Urban Developer has investigated five key tips for securing development funding.

1. Communicate Early And Do Your Due Diligence

Before a you secure funding for your next property development, it’s key to communicate with your financier and their preferred quantity surveyor (QS) to ensure that your bank or lender has comfort over the building team, construction and other costs and the agreement between the parties.

“It’s about looking at the proposed development to identify potential areas of risk including consideration of the risk mitigation strategies in place to inform the potential financier. With this in mind, it makes sense to instigate early engagement between your financier and the QS to ensure the development structure, team and contract platforms align with that supported by potential Financiers. Such engagement should provide the most efficient outcome from a cost and time perspective,” says Ivey.

The Due Diligence process will also increase your credibility with financiers and position you as less of a risk in your lender’s’ eyes.

“For the development program to be valuable, it must be evidence-, valuation- and QS-based and supported. Through obtaining valuer and QS support the key assumptions of your feasibility and cashflow become more bankable in the future, which greatly reduces your financing risks later,” says Royal.

2. Have A Clear Understanding Of Both Your Financier’s And Your Own Finances

Understanding the capabilities of those who’ll be financing your development is equally as important as understanding your own financial capabilities. Know where you’re money is coming from and how it is placed within the marketplace.

“Financiers appetite for funding moves in waves and are influenced by factors outside of just your deal. If a financier is ‘overweight’ in a particular sector, location, product type, or with a particular contractor – you may not get funding, no matter how solid your project is. This appetite will invariably be different for different financiers at different times. Certain banks are not lending for residential, but if you have an income producing investment style asset such as a child-care, or retail project or similar your funding options may be broader,” says Ivey.

Whilst it is critically important to assess the lending potential and circumstances of your financier, you cannot hide your own personal circumstances.

“It is obviously at this point that you should be working closely with your financial advisor or banker to understand how you are going to finance the entirety of the development from beginning to end relative to personal financial capacity,” says Royal.

3. Get Your Numbers Right

aving a clear understanding of your project budget and how you’re going to spend both your and your financier’s money is imperative to mitigating risk. Ivey says there are four key tips to executing this;

The most effective project savings are usually achieved early in the design phase when changes cost less to implement. Early feedback on construction costs, design options, and value management are critical.

Ensure you prepare a diligent, holistic budget which addresses all facets of the development. Whilst the developers ability to fund equity contributions and/or particular elements of the development is normal, financiers are focussed on a deeper understanding of where the developer’s funds are being spent across the broader cost centres.

Your budget should highlight areas often missed or not clearly identified. For example, works outside the boundary, utility connection fees and specialist consultants fees.

Banks are looking closely at feasibilities and in recognition of the low margin environment are looking in particular at contingency. You need to know what that means for you and your project – talk to your QS.

4. Coordinate With Care; The Team You Build Can Either Win Or Lose You The Game

Consulting with the right professionals will inevitably contribute a large part to the success of a development. Selecting who you choose to consult with, in particular your Contractor is a process that requires careful consideration.

“Despite the opinion of many in what has appeared to be a development boom, the contracting game has not been an overly profitable one for most. Whilst typically not the only reason, the low margin environment most contractors have operated in for some time now has contributed to a recent and ongoing list of contractors who are struggling, or worse failing, and consequently the banks are watching this space extremely closely. So the “right” contractor may win or lose you a preferred funding deal,” says Ivey.

Which may present a particularly challenging issue for developers as there are only a limited number of preferred contractors.

“As preferred contractors in good standing with the banks become harder to find, developers are resorting to locking them in earlier by using early engagement models such as Design and Construct (D&C) contracts. These of course come with their own challenges but when set up well can provide the required outcome in a challenging market.”

According to Ivey, it is important to remember that contractors must run a profitable business to provide a successful development outcome, so squeezing margin from contractors just to make your project feasibility viable is not necessarily the right approach.

‘Always leave a bit on the table for the next guy,” he says.

Selecting the right contractor is a much more efficient process with the advice and assistance of a good development manager.

“It is at this point where you begin to realise the extent of ‘what you don’t know’ and can appreciate the value of the advice and guidance that an experienced development manager can provide you with.

A development manager can assist you to build a ‘Development Program’. A sound development program is the fundamental core to any successful development company especially where there are heightened elements of complexity. Other key team members you’ll need to consider are; a specialist property finance advisor, a town planner and a property solicitor,” says Royal.

5. Have Your Information Ready

Financiers can appear to be asking for a lot of information, however if utilised efficiently this part of the process can be vital for double checking the facts. They provide the opportunity for a second set of eyes looking over your project via the financiers QS and valuer.

“The list of information requested by the QS may look daunting but by preparing early and assisting the QS in obtaining and understanding the information the outcome becomes a value added service. Typically it will take up to 10 days from receipt of all information to understand and analyse, so if time is of the essence then plan ahead,” says Ivey.

Mitchell Brandtman’s 2017 Education Program is for Financiers who would like to gain a more thorough understanding of what a Quantity Surveyor does and how we assist Financiers’ and their clients on a project.

After successfully launching our Financiers’ Education Program in QLD in 2013 and NSW in 2016, we are excited to now be offering this program to our Victorian clients in 2017. This year, we are running six sessions in Melbourne and you can expect to cover all of the topics listed below.

• Estimating
  • Check estimates
  • Elemental estimating
  • Bills of Quantities
  • $/m²

• 3 Types of Building Contracts
  • GMP (Guaranteed Maximum Price)
  • Cost Plus or Owner – Builder
  • D&C (Design and Construct)
    
• Understanding our reports
  • Initial Reports
  • Progress Assessments
    
• Different types of variations
  • Base Building variations
  • Client initiated changes
  • Purchaser variations
    
• Distressed Projects – early warning signs

• Assessments vs Certificate

• Insurances

• Bank Guarantees

• Dealing with unfixed material

• Civil Projects

• When is a project complete?
  • Certificate of Practical Completion
  • Certificate of Classification

Each session will also include a site visit. We will walk you through what we look for when assessing the site on behalf of the Financier.

To register your interest, please click on your preferred date below:

15 March 2017

5 April 2017

10 May 2017

14 June 2017

12 July 2017

16 August 2017

If you have any questions in regards to the Financiers’ Education Program please email Lisa Hemming at lhemming@mitbrand.com or call our Melbourne Office at 03 9944 3030.

We look forward to sharing  our knowledge with you and your team.

The Mitchell Brandtman Melbourne Team

Mitchell Brandtman compared a basket of their South East QLD projects which had successfully obtained construction funding over two periods – the first four months of last financial year (Jul-Oct 2015), and the same period in the current Financial year (Jul-Oct 2016). The goal was to see what has changed and what projects are currently getting funded.

There are a number of mixed messages out in the market place at the moment, and depending on where you sit you could be the busiest you have ever been, or staring at the edge of a rapidly approaching cliff.

The reality is that professional developers make up the core of most construction lending and they are a resilient lot.

They develop for a living and are adept at picking the cycles and moving from one sector to another depending on where they are in the property cycle.

On the other side of the fence, financial institutions don’t make money from leaving their funds in cash – they need to lend. APRA provides a helping hand with guidelines, but if you have the right product at the right time, and with the right team, then there will be funds available.

So What Has Changed In The Last 12 Months?

Based on the press, you would expect to find that number of construction loans for ‘residential’ purposes had slumped compared to the same period last year, however the opposite is true. The quantity of projects funded for ‘residential’ purposes are up over 15%. However, ‘residential’ picks up a wide variety of project types, the real story is in the detail.

Above: The figures in these graphs are based on a sample selection of projects Mitchell Brandtman worked on that obtained construction finance during the periods specified. The classification system is internal.

There is a rapid shift away from larger multi-residential projects, towards smaller boutique projects in the 5-10 kilometre ring.

In this sample of projects from South East QLD, the larger projects ‘8 levels and above’ and ‘4-8 levels’ receiving funding have halved, and the number of ‘townhouse’ and projects ‘up to 3 levels’ have increased nearly 60%.

Above: The figures in these graphs are based on a sample selection of projects Mitchell Brandtman worked on that obtained construction finance during the periods specified. The classification system is internal.

Developers are also casting their nets outside of the Big-4 for construction funding with a steady growth in projects funded by the smaller banks and alternative funders. They are also becoming more aware of the risk appetite of particular institutions for different types of developments and are targeting their finance applications.

Funders who last year were leading the pack in the multi-unit sphere are now more interested in funding sub-divisions.

When we look at what is actually under construction at the moment, we can see that the change in residential type has already started to bite. The data below is based on a 5 km petri dish of projects in Brisbane and on the Gold Coast ‘strip’.

It is based on all projects currently under construction with greater than 40 units.

The black line represents Nov16 and shows us that even if we add all of projects that are currently being marketed (green) to the projects that are currently under construction (red), then we are looking at having less work tomorrow than we do today in the 40 unit and above space.

There are a number of trends to watch out for in coming months:

• Financiers becoming increasingly wary of funding projects with ‘unknown’ contractors, or those who are not performing well on current projects. There are an increasing number of contractors who are struggling and the banks are following them extremely closely. The right contractor may win or lose your preferred a funding deal
• As preferred contractors in good standing with the banks become harder to find, Developers are resorting to locking them in earlier by using Design and Construction Contracts
• Experienced Owner Builders are revelling in the current market. They are agile enough to move quickly, and with one less layer of margin are able to make projects stack up
• A greater focus on lending for ‘non-residential’ purposes – in particular for aged care, pubs and clubs, and subdivisions
• A larger number of smaller projects with a shorter average loan life cycle – changing the dynamics of how financiers maintain their loan portfolios

In this current economic climate, the identification and management of risk is of prime importance.

Competition is healthy in any market but fierce competition the likes of which has been present in the SEQ market  from contractors “buying work” is a leading indicator of risk that we need to be aware of in the market today.  Competitive tender prices were gratefully accepted but they came with a heightened level of risk for all parties, and that risk not become evident until the project was well underway.

Contractors that tendered in the past, and are now having to let trade packages, may be finding that they have to pay more than they have allowed.

This leads to cash flow strain and can greatly limit their ability to deal with problems that arise on their projects. As a result the likelihood of projects in this situation becoming distressed is real, and we are already seeing a number of contractors and subcontractors going under.

While it is difficult to identify in advance every risk that may affect a project, staying transparent and exposing, and addressing, uncertainties early could make the difference between a project running smoothly and project becoming distressed.

Darryl Bird, a partner of Mitchell Brandtman 5D Quantity Surveyors, discusses the warning signs for distressed projects:

The Signs

• Low activity on site when it should be high – All projects have a rhythm, with different levels of activity during the different stages of construction. Uncharacteristic or unscheduled activity can be an indication of trouble ahead.
• Subcontractors and suppliers not being paid. This can be representative of a cash flow problem which can quickly escalated into liquidity issues and financial distress.
• Contractors over-claiming – This scenario may be evident through the progress claim process or in the number and value of variation claims submitted. Whilst this can often be seen as par for the course with certain builders, the reasons behind it need to be considered and changes in claiming behaviour interrogated.
• High turnover of Site Managers and Staff – Like with any company, any abnormal or noticeable turnover of staff can be an indication of the company having difficulties meeting the demands of it’s projects.
• Changes in the Developer and Builder’s relationship. Effective collaboration is the key to a successful project in a low margin environment. While these relationships can often be strained through a project, sudden unexplained changes can be a sign of stress.
• Another less obvious issue is where the parties to the contract do not disclose all relevant information and withhold the fact that there may be materially different Side Agreements in place. Often this does not become apparent until the project is underway, and the parties attempt to compensate for the side deal through over-claiming.

Communication is the key. There can be valid reasons for what appear to be troubling signs, like those described above, and it is important for all parties involved to communicate clearly and regularly. If, however, a project suffers a situation where the contractor enters Liquidation there are some immediate steps to take to limit further risks:

• Secure the site and ensure any further access to the site is monitored to ensure no further damage or loss is suffered.
• Insure the works.
• Review the existing contract and seek legal advice in order to terminate the contract, and in preparation for any further implications (ie. termination payments if applicable).
• Undertake a dilapidation style report including photographic records of the status of works on site, unfixed plant and materials, etc.

A detailed project or situation specific plan will then need to be established by appropriate experts to identify how best to proceed with the development.

How Can A Quantity Surveyor Help With Distressed Projects?

A QS can provide an independent review of a difficult project or situation, through to a full development audit and a detailed plan for the management and completion of a distressed project.

In some cases all that is required is a reality check and an experienced hand to get through a difficult period in the build.

Other projects may require a dedicated team of construction experts who can provide proactive, comprehensive analysis, advice, and innovative solutions for distressed project situations:

• Being a fresh set of eyes on a troubled project.
• By organising and recommending completion strategies and recovery plans including appropriate contract advice.
• Identifying current deliverables and completion status against the original plan.
• Validating recovery estimates, resource loading, budget and schedule.
• Establishing monitoring strategies and thresholds for budget and schedule issues.
• Identifying any avenues to reduce costs and eliminate scope creep.

There are a lot of misunderstandings around depreciation – what can and can’t be claimed, when claims can be made, who can claim them, and so on.

Here is a look at some “depreciation myths” with comments by Zac Gleeson, asset services manager at Mitchell Brandtman, that will hopefully demystify and simplify the matter.

Myth: Tax depreciation isn’t worth it due to Capital Gains Tax

The first myth which we would like to squash regarding tax depreciation is the notion that capital gains tax (CGT), which occurs at the disposal of your investment property, negates the savings made through claiming depreciation. The only instance where there is any truth to this statement is if you hold your investment property for less than one year, as you are unable to claim the CGT 50 per cent discount.

“People get scared off by the fact that claiming tax depreciation does in fact decrease your cost base. Let’s just look at this on face value for a second, claiming tax depreciation increases your capital gain and enables a larger after-tax profit,” says Gleeson.

If that is not enough, the increase in tax you pay at the capital gains event is less than half of the savings you have made through claiming tax depreciation over the life of your investment. Another win is the fact that plant and equipment, which equates on average to approximately $20,000 worth of tax deductions, is not taken into account within the capital gains calculations.

If we could ask you to take away three key points regarding this myth, they would be:

• the savings you have made through claiming tax depreciation is more than double the increase in tax you pay at the capital gains event
• it is important to hold your investment property for longer than one year so that you are eligible for the CGT 50 per cent% discount
• claiming tax depreciation increases your capital gain and increases your after tax profit

Myth: My property is too old to depreciate

The second myth we would like to squash is the far too common question that we get asked: “But isn’t my property too old to claim depreciation?”

Going back to basics there are two types of allowances available to property investors, Division 43 Capital Allowances (e.g. the building structure), and Division 40 Plant & Equipment (e.g. carpets, blinds, appliances and so on.)

Division 43 allowances are available to property investors whose investment property was built and/or renovated after September 15, 1987. Depreciation on plant and equipment is available to all property investors – there is no time limit for these assets.

No matter the age of a property, all investment properties qualify for depreciation. If your property was built prior to September 15, 1987, it will be inspected and your depreciation entitlements will be estimated based on the renovations, extensions and improvements undertaken to the property. No matter whether the works were completed by yourself or by previous owners, you are entitled to the depreciation of these works.

Plant and equipment is commonly worth up to $20,000 in total deductions over the full life of the assets.

If you are concerned about whether it is worth getting a depreciation schedule completed due to the age of the building, it’s worth speaking to a quantity surveyor (QS). From asking a few basic questions, these experts will be able to determine whether getting a depreciation schedule done is worthwhile and will outweigh their fee.

Myth: Renovations were completed by a previous owner, so I can’t claim them

I love this one as this is where a QS can really add value and increase your cash flow.

We believe there is no truth to this statement.

“This is where we as quantity surveyors come in to our own,” Gleeson says. “It does not matter if the works were undertaken by a previous owner; when you purchased the investment property you have also purchased the entitlement to claim depreciation on all of the property’s improvements.”

Quantity surveyors are the most suitably qualified and recognised profession by the Australian Tax Office to estimate the value of renovation works undertaken to the property and also estimate when the works were undertaken. They use a trained eye when inspecting the property, draw upon extensive construction knowledge, utilise historic council records and building searches, and use historical photos of the property as the basis for calculations. The experience a QS brings could save you thousands of dollars.

Most houses 10 or more years old will have had works done, the most typical being painting (commonly worth between $5,000 and $10,000,) bathroom (commonly worth up to $15,000,) kitchen (commonly worth up to $20,000,) and floor and wall tiles (commonly worth up to $5,000.)

On a 10-to-30-year-old property, there is $50,000 right there which you could be missing out on if you didn’t get a QS to do a depreciation schedule for your investment property.

If you are about to renovate your investment property, it may be worth getting a QS to undertake a pre-renovation inspection. This inspection allows a QS to identify what assets or capital works you are going to demolish or throw out. Did you know that you are entitled to assign a value to these assets and write them off as an immediate tax deduction? It is easy to get narrow minded when renovating as you want to complete the renovation as quickly as you can so that you can get a tenant back in paying rent, but a pre-renovation inspection and ‘scrapping report’ can save you thousands, which can offset your loss made through the renovation period.

Renovations to an investment property, whether undertaken prior to your purchase or if you are undertaking them yourself, are a gold mine if you utilise your depreciation entitlements correctly.

Myth: My accountant will look after my tax depreciation

Quantity surveyors often get asked, “Why can’t my accountant do the depreciation schedule for me?”

“I work alongside accountants every day and what we do as quantity surveyors enhances and positively accompanies what your accountant will produce,” Gleeson says. “There are a few key differences between what your Accountant and what we as QS’ can do for you and your investment property.”

Quantity surveyors are experts in construction costs and are recognised by the Australian Taxation Office (ATO) as the most suitably qualified profession to estimate the depreciable expenditure spent on the property prior to your purchase as well as the value of the fittings and equipment within the property. Even if it was constructed 25 years ago, a QS can estimate the construction cost using historical data, thereby increasing your depreciation entitlements. In accordance with ATO Tax Ruling 97/25, if your investment property was constructed after September 1987 and/or construction costs are unknown, you must engage a registered and qualified QS to produce a depreciation schedule. Your accountant can’t do this for you, if you haven’t paid for it or if you weren’t the original owner, you will need a QS involved to be able to maximise your depreciation.

Another scenario in which a QS can maximise your depreciation compared to an accountant is when you have built the building and you know how much it cost but you don’t have a sufficient break-up of items to be able to accelerate the depreciation. Can you show your accountant how much was spent on air-conditioning, light fittings, appliances, carpet, blinds and the like? In 99 per cent of cases, the builder will not break up this expenditure up for you. Quantity surveyors can again estimate the cost of each asset and accelerate your depreciation. It is very typical for a QS to be able to double your depreciation in the first full financial year by undertaking this exercise. This results in a saving of thousands of dollars which would have otherwise been paid in tax.

Myth: I have held my property for years, so there’s no point claiming depreciation now

We want to start this conversation off very simply with the fact that the structure of your investment property (IP) has an effective life of 40 years. If you have owned your investment property which was built post September 1987, then it is very likely you are missing out on thousands of dollars worth of possible tax deductions.

Even if your IP was built prior to September 1987, your property must have had renovations undertaken. Even if it was 10 years ago, there will still be significant value left to depreciate.

“Another tip which could save you thousands is that your accountant can help you claim tax depreciation retrospectively, amending up to the past two financial year tax returns making the most of your depreciation deductions which you may have lost through not claiming,” Gleeson says. “This is completely legitimate and the Australian Taxation Office actually encourages you, even if you haven’t in the past, claim depreciation deductions by amending your past tax returns (TD 2005/47).”

Now that Level 2 BIM is mandatory for all UK public sector projects from April 2016, the UK is looking to press on with Level 3 BIM to support a fully integrated and collaborative process that plans to save building owners billions of pounds each year. Previously the responsibility of the Department for Business Innovation and Skills, the BIM Strategic Plan will now be led by Treasury – the clearest sign that the UK is planning to own digital construction globally.  In contrast, the Australian Federal Budget released in early May, provides for strong financial investment of $50 billion for infrastructure projects through to 2019-20. However, it lacks any allocation for new projects or innovative smart city infrastructure planning on the horizon.

UK Continues to Fund Innovative Construction:

A week after announcing funding for Level 3 BIM in the budget policy papers, the UK Government also published its Government Construction Strategy GCS16-20 to deliver £1.7 billion in efficiency savings over the current parliamentary term. Increasing the use of digital technology including embedding Level 2 BIM is a key objective to drive innovation and reduce waste for the UK Government – the single largest construction client in the UK. The strategy is supported by the establishment of 20,000 apprenticeships across Government procurement. This policy is in recognition of a skills gap in the UK construction industry which if not addressed, is said to contribute to inflation and reduce productivity in the future. The Public Procurement Policy Note specifically requires the support of skills development and commitment to apprenticeships for any contracts of more than 12 months duration and worth more than £10million.

Running alongside the UK Government announcements supporting Digital Built Britain, is a recent call from the BIM Task Group for industry support to develop a standardised product sharing process and dictionary to support the industry wholesale.

Working in conjunction with CPA, BIM4M2, CIBSE and NBS, the focus for product data sharing is initially UK based but the BIM Task Group acknowledges the opportunities it will present internationally and the intention is that it will be mapped to Industry Foundation Classes and internationally agreed terms. The proposed process and dictionary were scheduled to be available from 30###sup/sup### April via the Construction Products Association (CPA) website.

So How Does Australia Really Compare?

Setting the missed budget opportunities aside, the Australian Government has at least signalled its interest in digital construction releasing the Smart ICT report in March. The 176 page document is an “inquiry” into the role of information and communication technologies (ICT) on design and planning of infrastructure in Australia. It demonstrates at the very least that Australia needs to establish a collaborative approach to ICT across federal and state Governments and industry organisations to deal with digital data and its opportunities for lean construction. The report has been prepared in consultation with a large number of local, state and federal Government stakeholders alongside industry associations and private sector interests in construction, engineering and technology.

Coming to the conversation a little late and lacking any teeth in relation to any mandatory recommendations, the Smart ICT report does focus keenly on…

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