What bigger versus smaller capital cities mean for an investor’s portfolio
Investors might think I am crazy when I say you shouldn’t be looking for a big population, major infrastructure, where all the jobs are or a lot of building activity. That’s right, I just ruined the exciting things you look forward to finding out about at every BBQ hotspot conversation.
However, if you really take a moment to step back, there is actually only one thing you really care about as an investor, and that is results!
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The size of the population and all those other things are not what you are after. Performance is what you are really looking for.
When considering performance, the other word that’s thrown around is long term.
Long term being used in an analysis in the world of property investing is the equivalent to the “get out of jail” card in monopoly. It continues to save you as you always find a way to justify its performance “one day”.
If a regional city outperforms a capital city, “No, but what about the long term?”
If a small capital city outperforms a major capital city, “Yeah, but long term, city X will win because of the population.”
Long term means something different to everyone; for some, it’s five years and for others, it’s 10, 20 or even 30 years.
Residential property mortgages usually have tenure for 30 years, so, for this example, why don’t we treat “long term” as 30 years?
| Capital city |
1990 |
2019 |
Average growth |
|
Sydney |
$194,000 |
$808,494 |
5.0% |
|
Melbourne |
$131,000 |
$645,123 |
5.7% |
|
Brisbane |
$113,000 |
$493,568 |
5.2% |
|
Adelaide |
$97,200 |
$434,924 |
5.3% |
|
Perth |
$101,125 |
$446,011 |
5.3% |
|
Hobart |
$82,000 |
$457,523 |
6.1% |
|
Darwin |
$101,500 |
$416,149 |
5.0% |
|
Canberra |
$120,750 |
$601,275 |
5.7% |
When considering these results, it’s fair to say that there is no clear correlation between a bigger capital city performing better than its smaller city counterparts.
When considering your next investment, forget the big capital v small capital, and while you’re at it, leave the regional v capital headlines at home too.
Instead, place your focus on the most important piece of analysing any investment: relativity!
- A lot of population growth (as a per cent), small incoming supply pipeline – good news
- Low population growth sounds bad, but what if it was coupled with extremely low incoming supply? – good news due to relativity
- A lot of infrastructure spending in comparison to previous amounts and in key impact areas – good news
- Huge infrastructure spend in terms of dollar amount; however, it’s consistent with what the city usually spends – What’s different?
- High incomes with affordable prices and/or cost of debt – good news
- High incomes – lack of affordability of prices and rents in line with income, also high debt cost – not good when you consider relativity
Without relativity to supply and consumer confidence, demand or the size of a city will never really matter.
To take your investing performance to the next level, take the blinkers off and go deeper into the analysis without the bias of big v small capital cities.
