The 10 biggest costs of real estate investment

New tax data reveals the 10 largest holding costs that landlords pay to maintain their real estate investments. While the biggest expense is an obvious one – interest on loans – the next biggest cost categories may be surprising. The second biggest expense was council rates and the third greatest cost was the fees landlords pay their property managers to collect the rent and organise repairs.

The Australian Taxation Office documents all 19 cost categories of real estate investment in the latest round of annual tax data just released for the 2022 financial year. Two of the cost categories are depreciation expenses, which do not come out of pocket but can be claimed by landlords as capital works and capital allowances to reduce their taxable income.

Landlords paid $15.76 billion in interest on their loans in FY22, along with $3.94 billion in council rates and $3.30 billion in property management fees. Property management is typically charged as a percentage of monthly rent, with other fees such as new tenancy agreements added on top.

Repairs and maintenance was the next biggest cost category with $3.19 billion shelled out to rectify issues. The fifth largest expense was body corporate fees at $3.12 billion. Body corporate fees are paid by landlords who own strata-title investment properties, such as apartments and townhouses.

The sixth biggest expense was insurance at $1.99 billion. Insurance costs may include protection against damage to the building as well as landlords’ insurance to cover rent defaults and contents. Landlords also paid $1.72 billion for water and sewerage services, with tenants in some parts of Australia like Queensland and Western Australia required to chip in to cover their water usage.

Land tax was next with $1.64 billion paid by landlords whose properties exceeded certain land values prescribed by their state or territory governments. Land tax has been a hot topic in Victoria in 2024 after the state government slashed the tax-free threshold from $300,000 to $50,000 from 1 January. The final two costs among the top 10 real estate investment expenses were $1.19 billion paid out to cover sundry expenses and $381.39 million for professional cleaning services.

In FY22, there were 2,268,161 landlords who owned investments either solely or jointly. This was one percent higher than in FY21 or the equivalent of 22,600 new landlords. FY22 was only the second year in more than two decades that a majority of landlords were cash flow neutral or positive instead of negatively geared. This was due to record low interest rates.

The official cash rate remained at an emergency low for the first 10 months of FY22, with the cheapest interest-only investment variable rates being about 2.5 percent at the time. Today, the cheapest interest-only variable rates are closer to seven percent, according to RateCity.

Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.

Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.

Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.

“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.

“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”

Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.

Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.

“In the absence of stock, demand exceeds supply,” he said.

Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.

He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.

“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.

“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”

Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.

He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.

McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.

While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.

“People are looking for value for money,” she said.

She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.

“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.

The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.

“The viability of a development happens at the moment the site is bought,” he said.

He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.

While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.

“It is actually a business that requires a level of expertise,” he said.

Looking ahead, the panel agreed opportunities remained in the market despite current challenges.

Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.

McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.

Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.

“We can provide affordable housing in this country,” he said.

“But we’ve got to wrap that affordable housing with the things that people want.”

As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.

The 10 biggest costs of real estate investment

Data from the Australian Taxation Office revealed the hidden expenses of owning an investment property are significant

Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.