Investment property: Aim for capital growth

Potential property investors, particularly those new to the industry, are easily swayed by the rental income a property could potentially generate. And while that is certainly an important consideration, it’s worth taking a closer look.

He explains: “Capital growth refers to the value of the property over time, while rental yield is simply the monthly cash flow. Both are important, but anybody wants to see an investment grow, and that growth is measured in capital terms.”The significance of capital growth is best illustrated through a simple example.

Capital growth on a property valued at R1.5m is likely to be around 6% per annum, or R90 000 per year. And while R90 000 is R30 000 less than the R120 000 rental yield generated, the overall appreciation of the property has not yet been accounted for.

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