In their 2017/2018 Hotels Capital Markets Investment Review, Colliers revealed transaction activity slowed, easing to $1.338 billion after a record three years.

For the first time in more than a decade, the number of rooms opened throughout the year surpassed the number traded.

During the last financial year, almost 6,500 new rooms came available in the ten major markets with an estimated value of more than $2 billion. This has resulted in more hotel development site sales in Sydney, Melbourne, Canberra and the Gold Coast.

Colliers also estimates there are around 27,000 rooms in the pipeline, with almost half of these new rooms currently under construction and 7,000 rooms proposed. Most of these projects are government mandated and likely to commence construction in the next six months.

With so much construction expected, it’s important for hotel owners to maximise their depreciation claims. Depreciation helps to improve cash flow and makes undertaking renovations or adding rooms more viable.

The below example illustrates total depreciation deductions available for a hotel with a purchase price of $2,110,000.

Purchase price $2,110,000

First year claim $254,746

Year 1-5 cumulative depreciation $1,002,996

The depreciation deductions within this example have been calculated using the diminishing value method. They assume the owner has an aggregated turnover of more than $10 million and is not eligible to small business instant asset write-off rules.

As you can see, these deductions are quite significant and shouldn’t be overlooked by any hotel owner or operator.

While there were fewer sales of major hotels over the financial year, performance varied across Australia.

Queensland was one of the more active hotel investment markets aided by the Gold Coast hosting the 2018 Commonwealth Games. Whilst the Sunshine state topped the number of deals, volumes were higher in New South Wales and Victoria, with transactions boosted by CBD sales.

Colliers found local Australian investors dominated in 2017/2018, accounting for 63.7 per cent of asset trades, considerably higher than the 16.5 per cent recorded in the previous year.

This change could be due to capital restrictions applied to foreign investors both locally by the Australian government and offshore. This was particularly the case for buyers from mainland China, where transactions accounted for just 1 per cent of all hotel sales reported following restrictions by the Chinese Government on foreign investment in late 2017.

Proposed changes from the 2018 federal budget may influence the hotel market in 2019.

While yet to pass through the senate, the proposed changes would mean that from the 1st of July 2019, offshore booking sites such as Wotif, Trivago and booking.com will have to pay a 10 per cent GST on hotel accommodation sales in Australia.

Owners or tenants who would like to learn more about BMT Tax Depreciation’s expertise in valuing hotels or other types of commercial properties can download our Commercial Capability Statement.

Article provided by BMT Tax Depreciation.

See also:

See the depreciation deductions available in a hotel room

What depreciation deductions are hotel owners entitled to?

Can you claim depreciation for an older hotel?