When Will Investing In Solar Make Sense For Property Investors?

It is estimated that around 26 percent of residential rooftops have solar panels; with that number expected to grow each year. However only one in every hundred is the proportion commonly cited of tenanted homes that have solar panels.

The reason for the low investor owned property solar take-up is largely due to what’s called a split incentive, where the investor has a significant upfront cost for the panels while the benefit of a smaller energy bill is received by the tenant over time.

We are yet to see a tipping point in the investor take up of solar panels. When we do, prospective tenants will have a greater choice in terms of picking between a property that also offers renewable energy or not. However, we are not there yet as property buyers and renters still don’t seem to give as much weight to solar panels in their decision-making process; as they do to location, style of property, number of beds and proximities to schools, transport hubs, parks and local services.

Is Solar worth it from an economic point of view?

To install solar panels the investment is around $6,500 before rebates. The average electricity bill for a tenant is estimated at around $1690 per year. So it’s difficult to say as there isn’t any hard data out there that can definitely say that if you put solar panels on your investment property, the rental market is willing to pay you an extra $30 a week for access to solar.

One interesting suggestion, to help speed up the uptake of renewables by property investors, which that has been proposed by the academics of University of Melbourne, relates to relooking at the tax deductibility of solar panel installation.

Currently the Tax Office considers installing solar panels as an ‘improvement’, which can only be claimed over several years. However, the academics are suggesting that if energy efficient initiatives (like solar panel installations) were classed as a ‘repair’ (a repair to the environment!), then this would significantly lower the upfront cost of the initial investment in renewables, and would likely see many more installations of renewables by property investors.

If the Federal Government was to get behind and support this suggested Tax Office change, it is easy to see how this would be welcome news for many property investors wishing to invest further in renewables, tenants and ultimately the environment.

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