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In my previous article I asked if the myth that properties turn over on average every seven years was accurate? We busted that myth and showed that it was closer to the truth in the early 2000s and that since then properties are being held longer.
What about another myth of real estate: the myth that property doubles in price every 10 years? To put another way, that it has returned on average seven per cent growth per year over 10 years.
I went back to Paddington, NSW and Paddington QLD to see how houses had gone over the 10 years to May 2014.
Since 2004, neither of the Paddingtons had doubled in price – in NSW the price had gone up only 45 per cent and in QLD the price had gone up 89 per cent. Put another way, the average growth in Paddington, NSW over the 10 years to May 2014 was 3.9 per cent and in Paddington, QLD it was 6.6 per cent.
For the whole of the Brisbane Council area the 10-year growth was 61 per cent, and for Woollahra NSW, which includes Paddington, it was 42 per cent.
Looking at houses in other suburbs in other parts of the country most did not double in 10 years, although Western Australia stands out as making the magical ‘doubling’:
|
Suburb |
Median Price (June 2004) |
Median Price (May 2014 |
% Return over 10 years |
|
Toorak VIC |
$1.67 million |
$2.72 million |
63% |
|
Spearwood WA |
$235,000 |
$520,000 |
121% |
|
Coodanup WA |
$146,250 |
$305,000 |
109% |
|
Darra QLD |
$186,000 |
$330,000 |
77% |
|
Unley SA |
$535,000 |
$880,000 |
64% |
|
Sandy Bay TAS |
$452,500 |
$650,000 |
44% |
So it looks like the myth might be busted. However, let us get a little creative and include net rental returns excluding any interest payments. Assuming net rental return is approximately 40 weeks per year to accommodate rates and body corporate fees, plus letting costs and some maintenance, then the situation changes quite substantially:
|
Suburb |
% Growth in median price |
Additional $ Returned from Rental (approx.) |
% Return over 10 years assuming rental income not re-invested |
|
Paddington NSW |
45% ($1.06 million to $1.54 million) |
$320,000 |
75% |
|
Paddington QLD |
89% ($475k to $898k) |
$200,000 |
131% |
The rental income makes a substantial difference to the net return over a 10-year period.
My conclusion? This is a case of ‘depends’, in pure terms prices don’t seem to double every 10 years, but taking into account rental returns doubling your investment return in 10 years is certainly possible.
If you have suggestions for other myths for me to check for next month, send them in and I will do some research for you.
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