When purchasing high growth property the aim is to secure assets that will out-perform the wider market. The main growth indicator for the property market is the median growth rate.
The median growth rate is determined by looking at the growth rates of a total number of properties in a particular suburb or city over a period of time and identifying the middle growth rate. It is not the average growth rate as many people believe.
In other words, the value of half the properties in that area will have grown more slowly than the median, while the other half will have grown more quickly.
Let’s take the example of a location where nine properties have been sold in recent months. Each one has grown at different rates. Ranked in order from highest to lowest, these are:
- 15 per cent
- 13 per cent
- 11 per cent
- 10 per cent
- 9 per cent
- 8 per cent
- 7 per cent
- 6 per cent
- 5 per cent
In this case, the property in the middle of this particular set of sale prices is the fifth property, which has grown at 9 per cent. Therefore, the median growth rate for this location over this particular period is 9 per cent.
By our definition, a high-growth asset will perform well above the median. Here is an example of a property that has out-performed the wider market. It was purchased in 2004 for $255,000 and has grown by over 12% each year up to mid 2008. Over the same time frame the Melbourne median has grown by around 7%.
Due to the power of compound growth the difference in value between buying this property compared to one growing same as the median will be in excess of $300,000 over 10 years.
Understanding the property market and how to select high growth assets will assist you in achieving your long term investment goals.
To discuss how Property Planning Australia can assist you please contact us.