Seek out the blue-chip Melbourne property investment suburb. And at under $400,000 it's not expensive: Mark Armstrong

Last Saturday a great piece of blue-chip real estate went under the hammer in Melbourne, but most of the market was completely unaware. The majority of people think if it’s blue chip it must be expensive; however blue chip really means an asset that has constant demand and price stability regardless of the price point.

Which property?  15/7 Sutherland Road, Armadale.

This property was nothing flash. It was one-bedroom apartment in a very tired condition, some might say dilapidated, but it did appeal to many buyers in the market. While the crowd was not huge the auction was very competitive with six bidders competing before it finally sold for $375,000.

You can watch auction highlights here.

This is not a one-off result in this street, as in June this year another one-bedroom apartment at

When we dig a bit further we find these types of properties have not only held their own but have excelled in a sluggish market. In August last year a one-bedroom apartment in the exact same block at no 48 that was similar in every way – top floor, car parking, same floor plan and in good condition – sold for $345,000. The investor who secured this property last year has experience a 9% gain in 12 months.

This example illustrates the fact that even in a market where property values are falling some are still growing.

Many people view the median growth rate as a definitive indicator of what the market is doing. However while the median growth is a good indicator of long-term trends it fails as a useful tool when selecting an individual asset. This is because the median represents the midpoint of growth rates over a series of properties. Logic suggests that half the properties in the market will out perform the median while the other half will under-perform.

One of the reasons these apartments have held their own is because of the underlying characteristics of Armadale. According to the 2011 census 53% of properties in Armadale are owner-occupied and 60% of these owner-occupiers have no debt on their home at all. In a suburb where the median value of a house is around $1.5 million that is a lot of equity.

Further, investors control 44% of all property in Armadale, and while most of these owners may have debt on their property, it is inexpensive debt to carry because rental income and negative gearing offset the cost

This balance of cashed-up home owners and investors means there is more likely to be consistent demand in this market.

On the supply side we find level of new stock coming onto the market is restricted by a scarcity of land and onerous town planning regulations. The 2011 census shows a modest 2% growth in dwellings in Armadale over the last five years.

This compares with areas such as Port Melbourne, where town-planning laws encourage development, which had 6% growth. While Point Cook, where land is in abundant supply, had an increase in private dwellings from 4,962 in 2006 to 11,525 in 2011, a massive 132% jump.

The upshot is these one-bedroom apartments have benefited from being in a suburb that has strong, consistent demand from both home buyers and investors in addition to restrictions in supply. These properties were also affordable and in a location that provides a great lifestyle.

The property market is driven by many factors including affordability, lifestyle, location and investment potential. When a property ticks all these boxes and is in limited supply it is more likely to be blue chip regardless of its price point.

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.