Arnold
CibbuanoWhat is Capital Growth and Measuring Investment Re
May 3rd 2006 04:15
Capital growth is the money you make as the value of your property appreciates. Whilst there is no written rule or guarantee properties generally appreciate in value with time. In boom times, some properties across Australia have doubled in value over short periods of time. These bursts of appreciation are generally short lived and whilst quick profits can be made, it takes an astute investor to predict a boom and buy into the market prior to the explosion of property value. For long term investment, steady growth can be reasonably expected from the property market. For advice with measuring and assessing the capital growth of your property comes this advice from Personal Investor Magazine,
“Measuring your investment in residential property to a benchmark is brand new for Australian investors. Yet it is essential. Without one, you don't know if your property investment has been a winner or an expensive flop. With one you will be able to set long-term goals and achieve them. Yardsticks are important so that you can compare apples with apples. For shares you would use the ASX 200. For listed property, the listed property index. For fixed interest you would use the UBS Warburg Australia composite bond index… Australian property investors have largely been flying in the dark when they buy residential property with no benchmark to guide them. But an All Housing Accumulation Index from Rothschild and Assirt does give a measure of total return, taking into account rental income on houses and units, capital growth on certain standard dwellings and subtracting the costs of property ownership expenses such as floor coverings, insurance and repairs that are monitored in the consumer price index.”
Investors should aim to be earning 1.5% to 2% above the listed property index. That is, if the listed property index is 6% a worthwhile property investment should be earning at least 7.5% each year on the direct property investment. Many Australians have investment property without actually having a clear understanding of the actual return of their investment. Indeed, many are in a situation of negative gearing with intending on being in this position. All property owners, do yourself a favour and do the maths.
“Measuring your investment in residential property to a benchmark is brand new for Australian investors. Yet it is essential. Without one, you don't know if your property investment has been a winner or an expensive flop. With one you will be able to set long-term goals and achieve them. Yardsticks are important so that you can compare apples with apples. For shares you would use the ASX 200. For listed property, the listed property index. For fixed interest you would use the UBS Warburg Australia composite bond index… Australian property investors have largely been flying in the dark when they buy residential property with no benchmark to guide them. But an All Housing Accumulation Index from Rothschild and Assirt does give a measure of total return, taking into account rental income on houses and units, capital growth on certain standard dwellings and subtracting the costs of property ownership expenses such as floor coverings, insurance and repairs that are monitored in the consumer price index.”
Investors should aim to be earning 1.5% to 2% above the listed property index. That is, if the listed property index is 6% a worthwhile property investment should be earning at least 7.5% each year on the direct property investment. Many Australians have investment property without actually having a clear understanding of the actual return of their investment. Indeed, many are in a situation of negative gearing with intending on being in this position. All property owners, do yourself a favour and do the maths.
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