Capital growth is the key to achieving long term wealth and security in property investment. How do you know if a property is going to give you the capital gains you’re after?
Aim for at least 7.5% per annum
We recommend looking in an area that has traditionally had an annual capital growth rate of at least 7.5%.
Beware of a capital growth rate that is too high
An area that has a recent capital growth rate as high as, say, 20% p.a. should sound warning bells. Why?
- A consistent growth rate of 20% p.a. is extremely unlikely to be sustained for a considerable period of time. You may well see the market balance out over the coming few years and experience an average capital growth rate of less than 7.5% p.a.
- The high rate might indicate you’re getting into this market too late in the cycle. A growth rate of 20% indicates a very steep peak – and may also indicate a steep fall on the horizon.
Look at the long term – past and future
We look at the capital growth over the last 10 to 15 years – has it averaged over 7.5%? Have the gains been consistent, or variable? Can you see what caused the variations?
Then we look at what else is happening in the area (for example, demographics, job statistics, industry, infrastructure, amenities) to make sure that it’s likely to continue to grow at 7.5%.