By James Fox, Southern Cross Property Group
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.
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.
Looking at the Australian residential housing market, we can see that it has grown by 147% over the past decade and 10.2% 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 12 identifiable 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.
1. Drivers Creating Demand
Firstly, 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.
2. Government Influences
Secondly, 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.
3. Economic Factors
The third category covers economic factors, such as employment and income opportunities in a given area, as well as interest rates. 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.
4. Housing Affordability
Last but not least, the fourth 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.
There is currently a gap in literature on buying property in Australia and although it can be confusing to try and navigate the property market, identifying the 12 Key Driving Factors that slot into the above categories can help to identify if a property will rise or fall in value.
These 12 Key Driving Factors, which haven’t been simplified into an easy to use matrix until now, can be used by anyone to determine capital growth potential on any property in Australia, while weighing up any risks of investment.
It is important to note however, that 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.
Source: The Urban Developer, https://www.theurbandeveloper.com/four-simple-ways-identify-drivers-capital-growth/
