Knowing property investment each asset is unique and has different risk-return profile. Capital growth or rental return should be referrer in property investment? When discussing property investment there are two somewhat conflicting philosophies. Some suggest you should invest in property for high rental return while others feel you should invest for capital growth (the increase in value of the property).

We would all like to buy property that have both great capital growth and a high rental yield. Fortunately this is currently what is being experienced in the North East of England at this present time, Asia country like Hong Kong, Taiwan, Korea and Malaysia.

Many new and experienced investors invest purely based on rental yield (the rental income generated over a year expressed as a percentage of the purchase price of the property). In general strong capital growth usually goes hand in hand with a lower rental yield.

As the value of a property increases, then it follows that its rental return decreases. This is of course unless the rent increases by the same proportion, which does not normally happen. Rents eventually go up but these increases lag capital increases by several years.

So the situation during any extended period of high capital growth as happens during property booms is that rental returns fall. This is just the way the property investment market works. During slower phases of the property cycle, when interest rates are rising and affordability of properties is decreasing, more potential home owner (first time home buyer) turns to renting properties. This is the stage of the property cycle that rental growth starts to catch up.

Now it’s obvious why many investors look for higher yielding properties; Typically they seek higher returns in order to service mortgage loan payments and cover other related costs. They also believe they cannot buy many properties because they can’t afford to service additional loans. This is why many new investors make the mistake of viewing their property investments as primarily income driven.

However we firmly believe that at the end of the day it is strong capital growth that will be the key to any successful property investment. New property investors should note that the first few years of property investing could be particularly challenging. Always remember that capital growth builds your equity much faster than loan repayments and rental income ever will.

We would always suggest that you seek a balance between capital growth and income and view your investment as medium to long-term and be prepared to ride out the inevitable cycles, which we see in the property investment market. The rental income (rental return) needs to be high enough in order to ensure that you cover all associated costs such as mortgage loan/ insurance / management charges etc. However unless you are retired and need income to maintain your lifestyle then you should always be looking further ahead towards longer-term capital growth.

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