The two pronged purpose of ... property investment: capital growth + rental yields / behavioural reaction = ?
Sophisticated investment varies from country to country. While some enjoy moderate capital growth and high rental returns, some have low rental returns that barely meet the cost of the property but enjoy exceptional capital growth.
By Scott O. Talbot
So where do we find the balance?
In an age where journalists are constantly under pressure from their editors to publish sensationalist headlines and capture readers attention, the facts can only be interpreted when you cut out the hype and opinion.
Capital growth charts often show peaks and troughs that seemingly portray alarming losses, when in fact what occurred was huge growth tempered by a slight cooling. But that doesn’t count for much if a journalist uses a percentage graph. The casual observer can easily be misguided and believe the hype.
Australia real estate capital growth
CAPITAL GROWTH + RENTAL YIELD BALANCE
In any case, what happens over a 12 month period has no relevance to an investors wealth and net worth over a five or ten year period. A two percent drop in value followed by a 10% rise in capital growth equals an overall increase of 8%. Some will only see the drop while a property investor clearly discerns an 8% gain and opportunity.
Real estate is not the stock market. There are predictable, seasonal, annual cycles in property values based on the weather alone. Couple this with public holidays and it’s obvious that selling your property in the midst of winter on a public holiday will not attract as many buyers as the spring market with flowers blossoming in the garden. These stimuli can be calculated in annual and bi-annual fluctuations in the market but rarely affect the overall capital growth rate.
External influences such as behavioural reactions to global and financial news has a direct effect on the capital growth rate of Australian property. More to the point, this is just a behavioural reaction, “Europe is in financial crisis”, riots in London “Spanish unemployment”, war.
All these elements are just behavioural reactions to global issues that have little or no relevance to the Australian property market.
As an example, during the GFC while financial anarchy was devastating most of the world, immediately preceding the demise of many financial institutions in Europe, the Australian property market experience and exceptionally high capital growth rate (against safe and normal capital growth rates) as the behavioural reaction of Australian and overseas investors immediately, again behaviourally, rushed to put their investments in the safety of Australian bricks and mortar investment.
Below are the figures that demonstrate the behavioural reaction to what would have been assumed to be a devastating set of circumstances, only benefit Australian investors. This demonstrates Australia’s resilience to global economic turmoil as a country of stable government, stable economic policy and opportunity, in stark contrast to a globally suffering economy.
And with Australian property providing such a stable and solid investment, the only question about the capital growth on your property is what to do with all the equity that builds up over time.
FROM A SAFE HAVEN DURING THE GFC UNTIL NOW, HERE ARE JUST SOME OF THE ONGOING REASONS WHY AUSTRALIAN PROPERTY HAS FLOURISHED WHILE OTHERS HAVE CRASHED:
- There are housing shortages
- Supply and demand are monitored and controlled
- Strong overseas migration and investment
- Mortgage interest rates are at record lows
Australian household sizes are shrinking, meaning more families and individuals want or need their own home.