It's all in the land value
When buying a home, many people focus on the house rather than the land when they consider the long term capital
growth potential. However, the data tells a very different story. The real engine of the capital growth for property is
always the land value. For example, in Sydney, land values have increased around five-fold since 2001. You’ll be hard-
pressed to find too many asset classes which can compete with land value growth over the long term.
In contrast, house values tend to depreciate in value over time because the asset’s useful life declines over the long term.
As this happens, the house may require more investment to extend its useful life. The key is to think about a house like
any other man-made asset. It has offers a fixed number of years of living potential in its current state, and requires
investment to extend its useful life.
Understanding that land is where the capital growth in property will come from is empowering. It provides investors with
a guide as to where they will generate the strongest property returns in the future. And that’s in houses, rather than units
for the simple reason that house owners generally own more land than unit owners. Also, the long term data shows that
land values near the cities and the coast tend to outperform as the scarcity of land in these locations is more extreme.
So why does land appreciate so dramatically in value over the long term? Landen’s Director Rashed Panabig explains:
‘Land is a scarce resource. Each year the Australian population increases thanks to the natural birth rate, and this is
generally compounded by immigration into the country, although COVID-19 has put a lid on that in recent months. The
combination of both of these long term property demand drivers and the lack of new land supply means there’s a natural
long term upward pressure on land prices. And the future is likely to play out in exactly the same way. Land will become
more valuable over time. It’s all in the land value.'
How investment property compares with other asset classes over the long term
When investors are putting together their investment plans either with their financial planners or...