Identifying the drivers of capital growth

Identifying the drivers of capital growth

In this mix, the undeniable metric that should be of most importance to investors is capital growth. And although capital growth may be another overused term in property investment conversations, it is essential that it is understood so risks can be reduced and outcomes maximised.

There are many reasons people choose to invest in property, whether for the positive and negative gearing benefits, rental returns or even due to the perceived safety in investing in bricks and mortar.

Looking at the Australian residential housing market, we can see that it has grown by 147 per cent over the past decade and 10.2 per cent in the past 24 months alone. In order to make sure investment outcomes are maximised when it comes to selecting a property, it’s important to understand what key driving factors have underpinned this growth to date.

There are key driving factors that have influenced the buoyant Australian residential housing market over the past decades of growth, and they can be broken down into four categories.

 

Drivers creating demand

It’s important to understand what drivers are creating demand. If you were to look at building approvals, are they growing at a slower rate than the population? If so, this can show that there may be an undersupply of property in this area.

 Government influences

As rules, regulations and grants can change at any time, government influences make up the second category of key-driving factors of capital growth. This can include government grants, building and stamp-duty saving incentives and supporting infrastructure programs.

Economic factors

Economic factors, such as employment and income opportunities in a given area, as well as interest rates are important. In areas where there is employment and income opportunities, there is the potential for further capital growth. This is due to the fact that people generally tend to live in the vicinity of their job, so it is important to understand the areas where there is a high level of economic activity.

Housing affordability

Last but not least, the final category covers housing affordability and demand for affordable dwelling types. This category includes looking at wage growth in a particular area, as people may be increasingly willing to outlay a premium to live in a desirable location.

 

An investment should only be purchased to give financial return and not financial liability. Invest wisely knowing your financial capacity and understand your financial returns prior to any commitment to avoid making poor financial decisions.

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