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Smaller Cities Lead on Long-term Capital Growth

There are many myths and misconceptions about what works best in real estate.

There are those who believe that you need to be close to the CBD or to buy in the expensive so-called prime suburbs to get the best capital growth, but the research data shows that this is nonsense.

Many Australians think that you need to buy in the capital cities, rather than regional areas, for superior price growth, but the regions have been out-performing for many years now.

The old paradigm that houses on land deliver better capital growth than attached dwellings like units and townhouses has been challenged by the results of the past two years, including recently during the times of rising interest rates.

And there are those who cling to the notion that you have to buy in the biggest cities, specifically in Sydney and Melbourne, to get the best long-term capital growth.

That one is a serious misconception as well.

New research by the Property Investment Professionals of Australia – PIPA – has revealed where the best growth has been achieved, among the capital cities, over the past 20 years.

And the results will surprise many people, because the two biggest cities rank in the bottom half of the table – and the best capital growth results have been achieved in some of the smallest capital cities.

The research was conducted by Peter Koulizos, who is the former chair of PIPA and a respected University of Adelaide property academic.

Koulizos analysed the Australian Bureau of Statistics median price of established house transfers from March 2002 to December 2022.

And the data shows that Hobart is the No.1 city for price growth over the past two decades – by a considerable margin.

Hobart’s median house price today is 5.9 times higher than it was 20 years ago.

Since 2002, Hobart’s median house price has increased from $123,000 to $727,000 – as Hobart rose from being the cheapest capital city for dwellings to being considerably more expensive than Perth, Darwin and Adelaide – and almost level with Brisbane.

Next best was Adelaide, where prices are now 4.1 times higher than 20 years ago, closely followed by Canberra at 4.08 times and Brisbane at 4.05 times higher.

Melbourne ranks 5th and Sydney 6th among the eight capital cities.

Peter Koulizos says: “We always hear about the property markets of our two biggest capital cities because a large proportion of our national population lives there, but when it comes to the performance over the long-term, they both are well down the leader-board according to my analysis.”

He says: “According to the ABS data, Hobart was the star performer by a country mile over the past two decades, which just goes to show that smaller cities as well as major regional areas can be sound property investment locations.”

Koulizos says our three biggest capital cities have also produced stellar house price increases over the period, with Brisbane prices quadrupling, while Melbourne and Sydney’s more than tripled.

Koulizo says: “What these statistics also showed was that every capital city had periods where median house prices fell, rose, or flat-lined because of a variety of economic factors, including two major global events over the time period, in the GFC and the COVID19 pandemic.

“As property investment professionals we always encourage property buyers to purchase property as a long-term investment and to do their best to ignore any temporary impacts on median prices or markets more generally.

“That’s because, as these results show, real estate has a proven history of performance over the decades, with our nation offering a plethora of places – capital city and regional – where homeowners and property investors can strategically purchase property.”

That’s perhaps the biggest message in these figures.

It’s not so much about which city did best and which one came last among the eight state and territory capitals – but that residential real estate does perform over the longer term.

And also that, if you choose your location well according to the evidence of major growth drivers, you can achieve superior capital growth.


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