Cars vs Property: Understanding depreciation

The Clever Investor Podcast

You would have heard the word depreciation, but what does it mean?

It's a slow change in value that happens to things over time.

Depreciation affects both cars and property, but in different ways, especially in Australia.

When you buy a brand-new car and drive it out of the showroom, it's no longer considered "new". Cars lose value as they get older and are driven more.

This decline in value is called car depreciation. In Australia, cars can lose value quite quickly, often around 20% in the first year and then around 15% each year after that. So, a car that's worth $50,000 when you buy it might only be worth $40,000 or even less after just one year.

Now, think about property, regardless of if it’s a house or an apartment.

Unlike cars, residential property generally tends to appreciate in value over time. This means its value increases as the years go by.

Property values can be influenced by factors like location, housing demand, local demographics and sometimes improvements made to the property. However, it's important to remember that property values don't always go up, there are situations that can cause them to stagnant for long periods or they can fluctuate, swinging up and down, depending on local market conditions.

In Australia, property is often seen as a long-term investment. People buy property with the hope that its value will increase over time, allowing them to be sold for a higher price in the future. This is why many Australians invest in property to help secure their financial future.

So, weather you're thinking about buying a car or investing in property, knowing how depreciation works can help you make informed decisions for your financial goals. Your own team of experts will help guide you along.