What is capital growth?
Capital Growth is the increase in value of your property over time.
It is measured by the difference between the current value, or market value, of your asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired.
For example, you purchased a property for $500,000 two years ago, and it is worth $580,000 today, your capital growth is $80,000.
It’s separate from rental income, which is the cash the property generates while you hold it.
How it actually works
Property values rise because of population growth pushing demand up, limited land supply (especially near cities), inflation making everything, including houses, cost more, and local factors like infrastructure investment or rezoning.
Australian residential property has historically grown around 6-7% per year on average, though that varies significantly by city, suburb, and decade. At 7% compounding, a property doubles in value roughly every 10 years.
Capital growth vs rental yield
These are the two ways property makes money, and they often pull against each other:
- Capital growth properties tend to be in high-demand locations where prices are already elevated, so rental yields are low (think inner-city Sydney or Melbourne, yielding 2-3%)
- High yield properties (regional areas, units) generate better cash flow but may grow more slowly in value
Most investors chase one or the other depending on their strategy: building long-term wealth vs generating income now.
