Where Melbourne property investors should look to maximise capital growth in 2013

Trying to pick property market movements in recent years has been tricky to say the least, but a recent lending report from Westpac bank into home loan approvals gives us an indication of what lies ahead in 2013.

The report shows that while lending for homes remained stagnant in October, the number of loans for investors continued to climb. Loan approvals to investors rose 5.5%, and this was off the back of a massive 8.8% jump for September. Year-to-date loans for investors have risen by 21%.

The planets are aligning for investors as the numbers begin to stack up. It is now becoming very affordable for investors to seriously consider a property purchase. But as the investors return to the market, the savvy ones will be looking to purchase properties that not only have minimal holding costs but also significant capital growth potential.

Investors will no doubt hit the traditional investment areas such as South Yarra, Elwood and Richmond. As usual, they will look for the standard requirement of good transport infrastructure, shopping, restaurants and bars because all theses things result in strong tenant demand.

However, investors should also be looking for emerging markets where properties are more likely to benefit from a big upswing in capital growth.

Take, for example, a couple of recent property sales in Melbourne’s inner west and north.

A one-bedroom apartment at 8/60 Farnham Street, Flemington, sold recently for $335,000. This price is more than $100,000 less than the median price of apartments in Melbourne so represents very affordable buying. In addition to the low entry point this property has the potential to be let for around $300 per week.

At a slightly higher price point but yet still very affordable is 20/203 Clarke Street, Northcote, which sold on the weekend for $452,000. While the view of the CBD is magnificent, this property also has the potential to produce close to a 5% yield. In isolation, a yield at this level is great, but hand in hand with very competitive fixed rates these properties start to look very enticing.

Currently an investor can lock in three-year fixed rates for less than 5.5% and taking it a step further,  five years can be locked in for just over 5.5%. This means properties such as these could be purchased and be very close to neutrally geared from day one. Investors would also have certainty over their interest payments for the next five years, and as time goes by the only variable is the rental return, which is likely to only move in one direction. Up.

Further, both of these properties are located in suburbs that are emerging investment areas. Traditionally investors have preferred to stay in the safe havens of the inner-eastern suburbs, where comparable properties could sell for an extra $100,000 or more.

Although houses in suburbs such as Flemington and Northcote have been highly sought for a number of years, a lot of buyers have viewed apartments as a risky option. However, as many investors are priced out of the eastern suburbs they will start to look for other opportunities. In short, properties like these have significant growth potential in the years to come.

It is important to remember that around 70% of the property market is controlled by home buyers. As a result the increase in investor demand is not going have an impact on the entire market, and overall growth may not be huge in 2013. However, investors will place increased pressure on pockets of the market, and these areas will have above average growth next year.

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