What is capital growth?

Capital growth is one of the most exciting parts of property investment because it refers to the increase in your property’s value over time. In simple terms, if you buy a property for $500,000 and later it’s worth $650,000, that $150,000 difference is your capital growth. This growth happens because of factors such as demand, location, and overall market trends. For many investors, it’s a key strategy for building long-term wealth, as the property you own today could be worth significantly more in the future. Understanding how capital growth works and what influences it can help you make informed decisions.

What influences capital growth?

Several factors can affect how much and how quickly a property's value grows. Here are some of the most common influences:

Location

One of the biggest drivers is location. Properties in areas with strong demand, good infrastructure, and access to amenities like schools, transport, and shopping often experience higher growth.

Market conditions

When demand for property is high and supply is limited, prices tend to rise. Broader economic factors such as interest rates, employment levels, and population growth can also impact property values.

Property specific features

Homes that are well-maintained, have modern layouts, or offer something unique often attract more buyers, which can support price growth. Renovations or improving a property may lead to higher value.

Buying lower than the market value

Purchasing property below the current market value can give investors a head start on capital growth. If the market value rises or the area becomes more popular, the property might appreciate faster.

Capital growth vs rental yield

Comparing capital growth and rental yield
  Capital growth Rental yield
Definition Increase in property value over time Income earned from rent as a percentage of property value
Focus Long-term wealth building Short-term cash flow
How it’s realised When the property is sold or equity is accessed Through regular rental payments
Key influences Location, market trends, economic conditions Rental income, vacancy rates, rental prices
Risk Market fluctuations can impact growth Rental income may not cover expenses

Why is capital growth important?

Unlike rental yield, capital growth is the wealth that builds in the background while you own the property, even though it comes with risks and market fluctuations.

  • Equity access: As your property’s value increases, you gain equity. Banks may let you borrow against your equity, to refinance, buy your next property or fund renovations, although these decisions depend on individual circumstances. 
  • Wealth building: Capital growth in property can help you build long-term wealth. A property that grows steadily in value can significantly boost your overall wealth, even if the rental returns are modest.

How to access capital growth in your property 

Once your property has grown in value, there are several ways you can access that growth.

Selling your property

The most direct way to access capital growth is to sell the property for more than you paid. The difference between the purchase price and the sale price is your capital gain. However, selling may involve agent fees, legal expenses and tax obligations.

Refinancing

Refinancing means replacing your current mortgage with a new one, often with better terms. If your property's value has increased, you may be able to borrow more against it, accessing some of the capital growth without selling.

Using equity to buy property

Equity is the difference between the value of your property and what you owe on the mortgage. If you have enough equity, you can use it as a deposit to buy another investment property, helping you grow your portfolio faster.

Tax implications

When you sell a rental property that has grown in value, you may need to pay capital gains tax on your profit. Here’s everything you need to know:

Capital gains tax (CGT): If you sell an investment property for more than you paid, you’ll likely pay CGT on the profit.

Discounts: If you hold property for more than 12 months, you may get a 50% CGT discount (individuals). 

Main residence exemption: If the property was your main home (not investment), you may not have to pay CGT at all.

Using equity: If you borrow against your property’s growth instead of selling, you don’t trigger CGT. 

The rules depend on your location and whether the property was your main home or an investment. Always check the latest tax information or get professional help to understand your obligations.

Is capital growth in property guaranteed?

No, capital growth is not guaranteed. Property values can rise, fall, or remain steady depending on market conditions, economic factors, and local demand. While property has historically shown long-term growth in many areas, there’s always a degree of risk. That’s why research and understanding market trends are important before making any investment decisions. If you’re ready to take the next step in your investment property journey, our home loan experts are here to make the process easier.

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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.

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