How long does it take for the value of a property to double?

After all capital growth is one of the main reasons people invest in residential real estate. Property Value

It’s often said that over the long-term the average annual growth rate for well-located capital city properties is about 7 per cent, which would mean properties should double in value every 10 years.

The problem is naive investors believe this myth and buy any old property and think its value will double in a decade – I guess that’s why so many investors fail.

But as with any good myth there is always partial truth.

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Note: So the truth is… some properties do double in value every 7 to 10 years, but many (most) don’t!

How much will your house be worth in 10 years?

The rule of 72 states that for a simple way to work out how long it has taken a property or an area to double in value, divide 72 by the annual growth rate.

If you want to know how many times it has doubled over a particular time frame replace the annual rate by the average annual rate over the same time period.

For example, if you think a property will grow 10% per annum, just divide 72 by 10% and that tells you that it’ll take 7.2 years to double.

Currently Australia is still working its way through the effects of its first recession in almost 3 decades and even though our property markets have rebounded, all those failed forecasts of last year show you how it is difficult to predict where property prices will be in three months, let alone seven to 10 years into the future.

But let’s dig deeper…

The following chart from CoreLogic shows that all property markets, other than Melbourne, finished 2020 higher than they started, and Melbourne has made up most of its lost ground and is likely to reach new heights again shortly.

In fact the modest coronavirus induced housing correction came to an end in the middle of October 2020 and that our housing markets are clearly on the move again.

Economy Prospect

History shows that some properties outperform others with regard to capital growth by 50 to 100%, meaning there is no reason why strategic property investors who buy an investment grade property in 2021 will not see the value of that property double within the next seven to 10 years (or one full property cycle).

The problem is…in my mind only around 4% of the properties on the market currently are what I would call “investment-grade.”

But let’s take a long term perspective and see what’s happened in the past.

Annual property growth rate in Australia

According to Corelogic research reported by Aussie, nationally the median house value has delivered an annual growth rate of 6.8% over the 25 years to 2018 and have risen in value by 412%, from $111,524 to $459,900 over that quarter of a century.

Apartments delivered an annual growth rate of 5.9% and have increased in value by $392,000 (+316%) since 1993.

In 1993 the median house value across Australia was just $111,524 and interesting apartments showed a slightly higher median value, at $123,840.

It’s the old story…who wouldn’t like to buy the home their parents bought for the price they paid?

 

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Source: Corelogic and Aussie

But as always growth rates were diverse with average rates of growth over that 25 years being:

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Source: Corelogic and Aussie

Of course a significant trend in the last few decades has been Australia’s adoption of apartment living.

Here’s how apartments have been performing:

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Of course there are markets within markets, so by geography, some by price point and some by the type of property.

That’s why you can’t really use capital growth figures for a city like Sydney or Melbourne and make broad brush conclusions.

You need to examine capital growth a a particular suburb, to be more accurate a particular neighbourhood within a suburb.

It’s also important to remember that…

The life-cycle of property markets

The truth is that property markets move in cycles. This means that each state has its own property cycle and there are cycles within each cycle.




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