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The nine secrets of high capital growth properties

Why do some dwellings go up in value faster than others? Andrew Nicol of Opes Partners says there are nine principles that make it more likely your property will appreciate in value.

9 March 2022

With house prices skyrocketing, it can feel like you could buy any property and do well over the long term.

But not all properties go up in value at the same rate.

Some properties will see their values explode, while others will appreciate more slowly. So, what factors can you look out for so you can snag a property with a high capital growth rate?

Here are my nine principles of capital growth.

1. Buy close to the city centre

Look at this map of suburbs within Auckland, along with their capital growth rates. The suburbs on the inner-city fringe have tended to appreciate more quickly than suburbs further away from the city centre.

For instance, suburbs like Ponsonby, St Mary’s Bay and Point Chevalier have grown faster than suburbs 40 minutes south of the city centre like Pukekohe.

2. Apartments grow more slowly

Over time, apartments have tended to get a lower capital growth rate than the likes of houses and townhouses.

Over the 20 years from September 2001 to September 2021, Wellington City apartments increased at a rate of 5.08 per cent a year. That compares to 8.22 per cent a year for all other types of dwellings.

But the trend doesn’t only hold for the country’s capital.

In Auckland over the same period, apartments grew at 4.79 per cent. That’s significantly slower than the 9.09 per cent all other dwellings grew at per year.

And in Christchurch, dwellings grew at 7.79 per cent annually, while apartments chugged along at 6.20 per cent per year.

3. Sections over 50 square metres

Many Kiwis think that the bigger the size of land, the higher the capital growth. That’s not true.

But data has shown that smaller sections – those with 50 square metres or less – tended to grow in value more slowly than those with more than 50 square metres of land.

4. Two bedrooms or more

When looking at capital growth across the number of bedrooms, one-bedroom properties consistently get less capital growth than those properties with more than one bedroom.

This trend was consistent across apartments, townhouses, and houses in New Zealand’s three main cities – Auckland, Wellington, and Christchurch. There’s no consistent trend for properties with two bedrooms and above.

5. Higher end suburbs

While not true all the time, house prices have tended to appreciate more quickly in higher-end neighbourhoods compared to lower socio-economic suburbs.

In Auckland, suburbs like Orakei, Mt Eden, Grey Lynn and Herne Bay are all higher-income suburbs that are also in the top 10 per cent of areas for capital growth.

Similarly, in Christchurch, wealthy parts of town like Sumner, Merivale, Fendalton and Strowan all feature in the top 20 per cent of areas for capital growth in the Garden City.

6. New infrastructure

In my experience, suburbs that are close to new infrastructure projects tend to experience a mini-bump in house prices once that infrastructure is completed and open.

A new motorway that cuts down on commuting time makes an otherwise remote suburb more accessible. This can increase the demand for house prices in these areas in the short term as the markets equalise.

7. Higher population growth

When a town’s population increases rapidly, so does its demand for housing. Housing supply takes time to catch up. So, a fast-growing population tends to push prices up faster than would otherwise be the case.

That doesn’t mean that areas with a declining population like Ruapehu or Kawerau will see their house prices decline. Just that there will be less impetus for that rapid capital growth to occur.

8. Don’t overpay

Say you pay NZ$100,000 more for a property than its market value.

Naturally, the capital growth you get on the investment property will be smaller than if you paid the fair market rate.

So, if you get a good deal on a property, you are in a better position to get capital growth than a property you overpaid for.

9. The right place in the cycle

Each region in New Zealand operates within its own property market. And each property market has its own property cycle.

Sometimes Palmerston North might be booming, while Taranaki is quiet. In other times Taupo house prices might be rising quickly while those in Invercargill stay stagnant.

Generally speaking, if an area’s housing market has been flat for eight to ten years, there’s a good chance it could be positioned for growth in the future, especially if neighbouring regions have already taken off.

Right now, the areas looking most ‘undervalued’ and in an opportune part of their property cycle are Canterbury, Auckland, Marlborough, and parts of Taranaki.

You’re not going to find a property with all nine factors

You’ll never find one property that has all nine of the factors mentioned in this list. After all, neither unicorns nor unicorn properties exist.

The key message is to look out for as many of the factors as you can. This means that you’ll at least have a framework to assess whether one property is likely to increase at a faster rate than another.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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