How reasonable is it to assume minimum 4% p.a. property growth?

[annz]

I am calculating potential returns for a 10 year buy & hold investment of an ETF vs IP.

Due to the leverage, 4% growth in property beats 8% of ETF after all expenses taken into account. Is it reasonable to assume 4% property price growth over next 8-10 years for a new build in Australian capital cities?

 

[rdevotie]

@annz Melbourne is 2.3% pa over the last 5 years https://reiv.com.au/market-insights/suburb/metro

 

[homeowner]

@rdevotie Its a bit different if you take the ten year view mentioned by the OP

2013 - $563k

https://www.smh.com.au/business/com...se-prices-rise-10-in-2013-20140102-306tk.html

Today - $909k per the reiv link

4.9% pa

 

[justanotherhypocrite]

@rdevotie that’s lower than inflation

 

[lordhelpme10]

@justanotherhypocrite Inflation has been 5%+ over the last 10 years? Source?

 

[net]

@justanotherhypocrite But still wildly overpriced for what it is.

 

[love2fly]

@annz It’s going to depend on what type of property and where. Have one with 0% growth and another with 6-7% growth

 

[annz]

@love2fly Say, a detached 4 bedroom house in a new estate in Melbourne, Brisbane, Adelaide or Canberra

 

[tonyluc2021]

@annz General rule: land appreciates, buildings depreciate.

New house on relatively small block in a new estate is lots of building value to depreciate and little land value to grow.

If you're ever going to get the returns you're talking about, gateway subdivisions aren't where it's going to happen.

 

[love2fly]

@tonyluc2021 Generally yes, but if you look at Pakenham and Tarneit in Melbourne those house on little blocks have easily increased by more than 4%pa over ten years.

People buying in new estates aren’t generally thinking to subdivide in a few years and build a couple townhouses. If you were buying closer in then yes you would be looking at a minimum 600sqm block if you want to make the best cap gains

 

[love2fly]

@annz In Melbourne I’d say yes. In laws bought two otp 4 bedders in 2009 for $390k each, now worth $800k+

 

[kijani]

@annz Why not use leverage for the ETF?

 

[annz]

@kijani Margin loans rates are currently at about 10% and margin calls are scarier than a property price fall.

 

[kijani]

@annz You can get loans for ETFs that aren’t margin loans. NAB equity builder is available and interest rates are just above investment property rates.

 

[annz]

@kijani The gap between rental yield and loan borrowing rate is ~1-2%

The gap between ETF Dividends and NAB EB rates can easily be 5% or even more for growth focused dividends.

I have never used NAB EB but I've read that IO loans on NAB EB are much harder to get. My cashflow will be smashed if I get NAB EB loan on P&I.

 

[kijani]

@annz It’s not hard at all to get IO. If you can’t afford PI maybe you shouldn’t be using leverage.

Rental yields on growth properties isn’t near 4-5%. This is also not the net yield. There are many costs associated with owning a rental property. These don’t exist for ETFs. You’re comparing apples and oranges.

It looks like you’ve made your mind up that property is what you want.

Have you allowed for maintenance or repairs of the property? Have you allowed for possible vacancy of the property of 2 weeks a year on average between tenancies?

 

[meepmeeprr]

@annz Houses only go up yeh ...

 

[faithbased]

@meepmeeprr 4% growth against a 6-6.5% interest rate… that’s good right…. RIGHT?

 

[hughrae]

@annz Problem with property, the growth is not linear, it tends to trickle along then jumps up over a couple of years, then plateaus again. So the growth per year is a calculation backward. It's not so predictable on the big price growth jump, but historically typically 10 to 12 years.

 

[hughrae]

Having said that, historical back test has been around 5% to 6% in general.