Capital Growth & Rent Growth Correlations
Is there a strong correlation if any, between the rate of capital growth and the rate of rental yield growth for an area ?
i.e if capital growth is at 10% does this mean that rent will command a 10% greater value for that area ?
I know there may be a lag effect between CG and rent growth but to what degree would the correlation between growth rates be ?
Thanks.
007I would like to know where to get capital growth and the like figures? Any idea’s would be welcomed! I am very new to this IP game, just bought my first.[
]Logic would say they are inversely related. When everyone wants to buy, nobody wants to rent, so rent prices fall. Vice versa when nobody wants to buy.
Then again in places where growth is slow & steady, rents should rise in line with growth.
hi guy’s
for data on capital growth try Australain Property investor Magazine. available at most newsagents or try http://www.apimagazine.com.au.
Hwd007
i’ve never seen any data on what you are after. But my experience in Victoria and SA is there is no link between capital growth. i can think of some areas that have appreciated by 50-100% in the last 12 months and the rent hasn’t altered. And other areas that have gone up only 20% and the rent has gone up 15%. Thats just what i have observed.
regards westanPersonally I think there is a correlation, but the question is to what degree. Try to rent in a good area against a bad area and you will find the property values in the good area are more, as is the rent.
I admit this says nothing about growth, as it is only a snap shot in time. But, the correlation between good areas or high in demand areas should surely relate both to rent and property values.
As measured over time surely high in demand areas would exhibit strong growth both for property values and thus rentals.
I mean look at it this way;
1. high demand area => low vacancy rate => upward pressure on rentals
2. high demand area => low for sale rate ( i.e. more people wanting to live there than want to sell supply Vs demand ) => upward pressure property values.
The lag may be reflected by rental contracts of 6 to 12 months. Thus one would have to typically have to wait for a full 12 month cycle to see the rental prices begin to reflect the capital growth from the previous year.
I can see the logic of everyone want to buy and thus nobody wants to rent also, but applied at a more macro level. However on a more local or micro level perhaps less so.
In any event, even applying the macro logic to the micro or by suburb level, the reality is that even if everyone wants to buy, many of those that want to buy, want to buy so they can rent out the property on the logic that they believe they will get strong rental returns in a high demand area.
]
The topic ‘Capital Growth & Rent Growth Correlations’ is closed to new replies.
