Capital Growth Investments – Performance

By: Rosemary Johnston – Monday, January 21, 2013

Where are the best capital growth investments?

Working out which areas in Australia, your city or your suburb are performing above the national, capital city or regional area capital growth averages is what most of us are looking to identify for new purchases.

Capital growth is a measure of an imbalance in supply and demand for housing.  Ideally we want to identify an imbalance in homeowner supply and demand, as these are the people who are willing to be emotional and pay more for property because they love it.  The areas they are in love with are more likely to perform and deliver above average capital growth.  Where can we find mass-market behaviour indicators indicating the next growth areas?

The PIAA methodology to establish increasing demand for an area is to trend actual figures for days on the market and median prices over a period of time.  What we are looking for are areas with rising median prices and reducing days on the market.  This pattern of performance reflects a potential growth market.  It signals an area of interest for us to investigate further through sound due diligence.  Because we are trending data we can use published data that is several months from collection.

This is also the time of the year that forecasts are made and many professional groups have had varying success with their predictions over the years.  This year we have the following forecasts.

Australian Property Monitors          3-5%

AMP Capital                                   4-5%

BIS Shrapnel                                  6% for Sydney

8% for Brisbane

The agreement from APM and AMP Capital is for a modest year of growth, below the 7% average.  BIS Shrapnel, a offers an economic view and has identifying the two growth markets as Sydney and Brisbane to over perform.   Last year they had Newcastle and Townsville among their noted performance areas.

Many property investors in South East Queensland will be pleased to see these figures and hope for some good results given they had such a dip in prices last year.  Sydney on average had very little negative growth and so is moving forward over all.

How is My Investment Property Performing for Capital Growth?

To identify what is happening for our existing properties we can use the capital growth data published monthly by APM, Residex or RP Data for our suburb.  However it is not very meaningful without a benchmark.  We need a reference to know what is average for our region, city or state so we can review if our property is performing at above or below average.  Historical capital growth data is published by APM each month for capital cities and two regional cities: Newcastle and the Gold Coast.  It provides us with valuable information.  We can work out if we have the performance we need to meet our goals.

If we were to plot our suburb’s performance and that of the nearest benchmark capital city or regional centre we would have even more insight into the performance of our area.

If we want to know more about our specific property we could always ask for a real estate opinion however many of these are inflated to support them retaining your property listing rather than representative of the market price.  Looking at other sales in your area on the web or through a suburb report may provide better quality of data.

Above average capital growth is the best performance for our investment and gives us the best opportunity to achieve our long term wealth creation goals.