What is capital growth, and how can you maximise it?

Whenever we invest in a property, price and personal wishlists usually rank top of our considerations. But savvy buyers know there’s another rat in this race: capital growth. 

Let’s unpack why capital growth matters to your purchasing decision – and how you can make the most of it.

Capital growth describes how much a property’s value increases over time. If you buy a house for $1 million then later sell for $1.3 million, the capital growth was $300,000. 

In general, property values tend to increase over time anyway, but this can be somewhat misleading. Just because the median price of a suburb goes up, doesn’t mean every property price within it did. It just means the area’s trending up as a whole. 

The key is learning how to spot properties that will likely gain value as they age – or at least, gain more than other options on the market.

So how does one go about getting the biggest bang for their buck?

“Firstly, capital growth assessments have nothing to do with your brief,” says principal of Michelle May’s Buyers Agents, Michelle May. 

“You have to leave your wishlist at the door and look at each property without emotion. You can’t attribute any extra value to a property because it has your dream kitchen or added storage. We’re simply looking to see if it’s a good investment.”

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While ruthless practicality may not come naturally to some, it’s vital to think of the big picture. When we’re in a housing moment like now when supply outstrips demand, it’s a buyer's market. Hopeful homeowners will seek out the most competitive properties on the street while others get left behind.

To counteract this, May advises to not just look at the property itself, but the whole neighbourhood.

“Some things that negatively impact capital growth are properties on main roads, tight and inflexible floor plans, narrow frontages, a poor level of finishes throughout, bad parking options or strata teams with a poor history of success,” says May.

“On the flip side, properties that do well will be on a quiet street, close to amenities, and walkable to nearby attractions and green space. They will have a private outdoor area, excellent transport links and little to no development nearby.”

It may sound like wishful thinking, but these kinds of properties do exist. It just requires some careful research and creative thinking, such as going off-market.

“The more you know, the more empowered you are to make better property decisions,” concludes May, “and in the current market conditions, that extra knowledge will put you ahead of the property-hunting pack.”

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