Fitzroy's true property price growth: Secret Agent

Fitzroy's true property price growth: Secret Agent
Fitzroy's true property price growth: Secret Agent

GUEST OBSERVER

Between January 2011 and December 2015, 512 houses and townhouses were bought and sold in Fitzroy.

A simple comparison between average prices in 2011 and 2015 reveals that these have increased by about 9.4 percent per year (Table 1).

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Fitzroy's true property price growth: Secret Agent

That’s the only thing this tells us: people spent more money on each house in 2015 than they did in 2011. As a statistic, averages can be very misleading. They ignore any changes to the mix of properties being put on the market.

For example, each time a property is refurbished, extended or renovated, the value of the property increases. While this increase in value is reflected in an increased average price, this is not true capital growth, as additional investments had to be made. Also, with only about 100 properties being sold each year, the sale of a very few, very large houses would have a significant impact on the average price in that period.

If we break this down into individual years (Table 2), we can see that average prices fluctuate, which again highlights the limitation of using averages as indicators of capital growth.

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Fitzroy's true property price growth: Secret Agent

A better way to track capital growth is to track individual houses that were bought and then sold again at a later time, while remaining physically unchanged. This eliminates the other factors mentioned earlier that plague averages.

Using selected properties that were sold twice or more since 2011, Table 3 shows the year-on-year capital growth of houses and townhouses in Fitzroy, while Figure 1 shows the growth of a housing investment made in 2011 visually.

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Fitzroy's true property price growth: Secret Agent

A house that was bought in Fitzroy in 2011 would sell for 25% more in 2015, given it remained in the same condition.

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Fitzroy's true property price growth: Secret Agent

The only limitation of this methodology is that it can become inaccurate if the sample of properties is small. For example, in Fitzroy only 29 property sales were deemed eligible for the index above. This can be improved by extending the time range to earlier than 2011, which would show longer term growth trends.

For more information, click here.

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Melbourne Residential Market

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