Indications of capital growth

[locko24]

Hey all

This months edition of YIP had a page tipping areas for future capital growth.
The biggest indicator they used seemed to be rental growth v median price growth over the past 12 months. For example, Goulburn's rental growth was +24%, whereas it's median house price only grew by +3%.

Using these figures alone, it would seem Goulburn is a near certainty of a decent CG gain over the next 12 months.

Any thoughts on this? Any other indicators people use for a reliable result?

 

[Peter_Tersteeg]

There's been some market cycles in the past which I think will difinitely continue and are generally quite predictable.

1. People look to areas which they believe will have good growth (generally metro areas). They gear (negatively) quite heavily into these areas. This is what we saw in late 2008 to early 2010.

2. Cash becomes tight as a result of the gearing levels, so investors start to trend towards cashflow properties. This is where we've been for at least 12 months now.

3. The sentement for cashflow drives demand in certain areas, pushing up prices in those areas. This is starting become apparent in some areas.

4. The capital grow areas in phase 1 either fall in value a little, or stagnate for a period of time. Rents start to catch up a bit.

5. When the metro area rents get to a more palitable level, and incomes also catch up, or rates drop sufficiently to make the gearing levels on these properties more palitable again, we start to go back into the growth phase and the whole thing repeats.

Since 1998 I've seen this cycle at least 3 times in various areas. The expansion and contractions aren't always the same size, but there's definitely a pattern.

In essence, Locko, I think you're probably right. Captial growth often does chase good rental returns.

 

[Propertunity]

.... Captial growth often does chase good rental returns.

^ ^ what he said.

 

[mystery]

Great reply PT_Bear ...... I settled on the purchase of a property in Goulburn last week, so I hope the theory transpires into some good capital gains over the coming years ....

Cheers

Mystery ..

 

[BayView]

Hey all

This months edition of YIP had a page tipping areas for future capital growth.
The biggest indicator they used seemed to be rental growth v median price growth over the past 12 months. For example, Goulburn's rental growth was +24%, whereas it's median house price only grew by +3%.

Using these figures alone, it would seem Goulburn is a near certainty of a decent CG gain over the next 12 months.

Any thoughts on this? Any other indicators people use for a reliable result?

Just because the rent goes up doesn't mean your IP will go up in value.
And, a median stat means JS; it can be totally skewed by a few high-end properties sold, which almost no-one can afford to rent anyway, or there might be a ton of low-end properties sold (especially in regional areas) which will keep the median lower.

 

[lyndon01]

A few high-end properties (or any value) shouldn't affect the median, unless only a few properties are sold overall...

 

[locko24]

Just because the rent goes up doesn't mean your IP will go up in value.
And, a median stat means JS; it can be totally skewed by a few high-end properties sold, which almost no-one can afford to rent anyway, or there might be a ton of low-end properties sold (especially in regional areas) which will keep the median lower.

Let's see how Goulburn goes in 12 months!

 

[Merino]

Bayview i think you are confusing mean with median, although if a new subdivision s brought on and there are a lot of sales this will bring up both the median and the mean.

I think there has been a lot of newer four bedroom homes built and sold in goulburn recently which could be a reason why the median has jumped.