Are Childcare Centres the Next Big Thing for Investors?

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THE GROWING DEMAND for childcare centres is no longer just from parents jostling to get their kids on waiting lists.

It’s increasingly also coming from investors looking to get a slice of this burgeoning real estate market and to take advantage of the significant tax deductions available for this type of property.

Why is this so?

There are a number of reasons why childcare centres are becoming more attractive to investors.

First of all societal trends are leading to a growing demand for this type of service and property.

Increased government funding, higher birth rates and a greater number of females returning to the workforce have created a demand for childcare services like never before.

And this demand will only become greater with an estimated 500,000 children to be added to the 0-5 years population over the next fifteen years, according to figures published in the 2016 Colliers International Whitepaper on childcare in Australia.

In addition, long term leases of 10 plus years, and typical yields of around 6%, are making childcare centres an appealing option to investors.

Finally, investors are also becoming increasingly aware of the depreciation benefits they can claim from such properties. These deductions are often in the hundreds of thousands of dollars over the life of the property and even into the millions for some larger centres.

There is a definite uptrend

In the last financial year (2015-2016), BMT recorded a 67% increase in depreciation schedules for childcare centres and a further 37 per cent increase in the year prior.

This increase is supported by findings from the Colliers International whitepaper, which noted a 4.6% annual growth rate for this industry.

It appears childcare centre operators are realising the value of claiming depreciation to improve cash flow and remain competitive in what is becoming a sought-after market.

Many of the childcare centres BMT has prepared schedules for have been able to claim hundreds of thousands to millions of dollars in deductions over the life of the property.

The tax benefits are considerable

Recently – as one example – a large childcare centre was able to claim close to $2 million in total deductions and $127,000 in first year deductions alone.

Common items located in childcare centres, such as artificial grass, sandpits and play equipment, are unexpected yet valuable sources of additional income for operators and owners.

For instance, one operator BMT prepared a schedule for was able to claim $8,950 in first year deductions for artificial grass and $15,000 in first year deductions for play equipment.

Other childcare centre items that can be claimed include food processors, bathroom accessories, refrigerators, ceiling fans, computer equipment, washing machines, partitioning, dishwashers and vinyl, among many other assets.

Unlike for a residential investment property, both owners and tenants of childcare centres can claim depreciation deductions, as well as those running child care services from their homes. Owners can claim capital work deductions while tenants can claim depreciation for plant and equipment assets, such as those listed above.

Bottom Line: For operators who might be struggling with cash flow, depreciation deductions can provide additional income to help with day to day expenses and business operations, which should prove beneficial in what is becoming an increasingly competitive industry.


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