What is Capital Growth?

An investment property can be measured by two types of financial returns – capital growth (increase in property value) and rental yield (income). Capital growth is the percentage increase in the price of an asset over time; in this case, a property.

Influencing Factors

For a long term ‘buy and hold’ strategy, a history of stable growth between 6-10% is essential. Capital growth is driven by simple demand and supply forces:

• demand of people wanting to live within the area;
• and the supply (volume) of houses available.

It’s important to look at location characteristics and demographic changes such as average income, median age, % of owner-occupiers vs investors, and if there is nearby precedent for higher house values (known as ‘established capital benchmark’). Recent historical capital growth in Melbourne and Sydney has been significant, due in part to them meeting most of the indicators required for sustained capital growth and population growth.

All of these items act as influencers on price growth and may differ from one suburb to the next (and in some cases from street to street). When comparing past performance of an overall suburb it’s advisable not to focus on quarterly growth rates as these figures can fluctuate considerably.

How to Calculate Capital Growth

The calculator below delivers you an estimate of how your property’s capital growth occurs over a specified time frame. It is a useful tool for investors wishing to estimate the potential increase in a property’s value over time before committing to the investment.