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Capital Growth: It’s important to understand what is being measured

Measurement – it’s important to understand what is being measured. 

It is also important to understand where the results are coming from. location map house suburb area find

Here, I am talking about capital growth.

A statistic recently caught my eye.   

There is a backstory, but I won’t bore you with it, except to say that it is an increasingly common one, in that a lot of people really want to believe this stuff.

Apparently, unit + townhouse prices in Bellbird Park, a suburb in Ipswich, in Brisbane’s west, grew by 93% over the last 12 months.

Well, the BS meter was pinging like there was no tomorrow.

This is what has become known as ‘suburb growth’, and many think that it refers to the actual capital growth of properties within a particular suburb.

Some even describe these results as ‘capital gains’.

These results are based on the change in median (or sometimes average) property prices between two time periods.

It doesn’t measure capital growth or capital gains at all!

Far from it. 

investor-enquiry-form

What such figures measure is the change in the type of property sold between the two time frames.

These results are often influenced by the age of the properties – new stock versus much older resales; development sites; quality and location of the housing itself; renovation activity; out of line sales (such as divorces) and sometimes sales that haven’t even occurred in the suburb at all.

Access to this type of information is quick these days and it is free.

But the only way to have some real understanding of capital growth is to investigate resales.

And when you do that for units + townhouses in Bellbird Park, you find that 14 properties resold during 2016, with annual average capital growth of just 1.5%.

The median capital growth per annum was just 1.1%.

A far cry from 93%!

Of the 14 resales, six sold for a loss on resale.  research find search property investment location area suburb state market

The best annual capital growth on a unit/townhouse resale in Bellbird Park was 9.4% last year and the worst result was a -4.5% annual loss.

Most properties of this nature, in the area, saw little capital growth if they were held for less than ten years.

Most resold for a loss if held for less than five years and the best results were for properties bought in the late 1990s/early 2000s.

So, just like when measuring the vacancy rate, I think we need a standard industry measure to better judge capital growth.

Other investment classes have such checks and balances and it is time that the property industry had likewise. house property

And for mine, it must be based on resale analysis – the same property – excluding those with major renovations – selling over time.

But this takes time, therefore costs money and, well, many won’t like what they will hear.

Using a change in median or even average prices is okay as a broad indicator and when enough sales take place to render the results some meaning.

There, we are talking about whole cities or major regions and not suburbs or even postcodes.



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Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


'Capital Growth: It’s important to understand what is being measured' have 3 comments

  1. Avatar for Property Update

    April 21, 2017 @ 10:34 am Vicki

    Brisbane’s property values have been very average over the last 10 years. GFC, flood etc and barely 4% over the last 3 years. Hoping but not expecting a good uptick

    Reply

  2. Avatar for Property Update

    April 21, 2017 @ 4:59 pm Lisa

    well that’s concerning! All the sources I go to get Capital growth figures seem to be calculating the median price changes over time. In light of this information, where do you recommend I go to source this data? Is there an easy or cheap way to get it?

    Reply

    • Avatar for Property Update

      April 21, 2017 @ 8:46 pm Michael Yardney

      Lisa
      You really need to look at the sale prices of individual properties to get an idea of how the market is moving – that stats you can buy are a start – bit far from enough – you really need to have on the ground knowledge – and that’s not easy

      Reply


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