Powered by MOMENTUM MEDIA

What bigger versus smaller capital cities mean for an investor’s portfolio

Sydney and Adelaide

What bigger versus smaller capital cities mean for an investor’s portfolio

by Arjun Paliwal | 03 June 2019
research
1 minute read

What bigger versus smaller capital cities mean for an investor’s portfolio

June 03, 2019

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!

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”.

Advertisement
Advertisement

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%

PerthPerth, TAS Perth, WA

$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.

What bigger versus smaller capital cities mean for an investor’s portfolio
Sydney and Adelaide
spi logo

About the author

Arjun Paliwal

Arjun Paliwal

Arjun Paliwal is the founder of InvestorKit, a leading residential and commercial investment property buyers agency. InvestorKit specializes in helping people find and secure rare positive cashflow investments that can put money back in your pocket with an added upside for capital growth. He aims to help people grow wealth without the major compromise in... Read more

From the web

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.