Average annual capital growth has been 8.4% since 1980 – RP Data

RP Data released some interesting data today. They looked at capital growth rates since 1980 and for the last 30 years   their statistics indicate that:

  • Australian house prices have increased at the average annual rate of 8.4%. This implies that over the last 30 years property has doubled on average every 8.5 years.
  • the rate of inflation has averaged about 4.6% (and 3.2% over the last decade).
  • the weakest 5 year period of growth was from 1990 to 1995 when the median house price across Australia increased by just 2.8% per annum
  • the strongest 5 year period of growth was from 2000 to 2005 when average house price growth was 13.9% per annum

Tim Lawless from RP Data states "the economic and demographic foundations of the market remain solid which suggests that we are likely to see ongoing improvements in Australian house prices, albeit at a much more modest rate that what was seen between 2009 and the first quarter of 2010."

This is a pretty good summation of the view most property analysts seem to hold at the moment.

What all this reiterates to me is that:

  1. timing in property can make a big difference to your returns. A very simplistic illustration based on the RP Data analysis would indicate that if you bought a $400k property in 1991, in 1995 it would have been worth $459k and you would have made $59k. If you had bought a $400k in 2001, in 2005 it would have been worth $766k and you would have nearly doubled your money in 5 years.
  2. adding value to your property is always important, but never more so than in a market in which you cannot rely on strong capital growth rates.

Timing the market is hard. As is picking the right property. Thankfully picking a property you can add value to is a little easier!

Smart company carried a pretty good summary of the research including median house growth charts nationally and for Sydney, Melbourne and Brisbane...

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