Still room for growth in blue chip suburbs so long as you make good decisions: Mark Armstrong

The property market pessimists are crying capital growth in the Australian property market is dead forever and the only direction prices will go are down. Yet year after year there are properties that prove them wrong.

Much has been spoken about the global property market and that our market will ultimately follow a similar fate and I am always at pains to point out not all property is created equal. This applies to most cities around the world.

Take a look at the two properties below. The property on the left is located in the bluest of blue chip suburb of South Yarra. The one on the right is located in London’s equivalent blue chip area of Kensington.

The apartments are very similar in terms of character and size as the floor plans below illustrate.

The South Yarra property recently sold for $520,000 and the London apartment has a value of a million pounds or $1.7 million. This means a comparable one-bedroom apartment in London is worth more than three times as much as the one in Melbourne.

There is a perception that growth for this London apartment has run out of steam but the statistics suggest otherwise.

In recent years the UK market as a whole has been weak with property prices falling slightly. According to Nationwide property prices have slipped back by 2.76% over the last 12 months. However this is in stark contrast to the market in Kensington that has grown by a whopping 15.8% in the 12 months to March.

I am not suggesting our market is the same as London’s given their population is double ours. In addition their market is much older, more established and on the doorstep of Europe. However our blue chip markets are driven by the same demographic factors and are following a similar path of growth and demand.

When I attend an auction for an apartment like this one in South Yarra I often see the same cross section of buyers competing.

I often see a young people bidding who are being backed up by their parents' wealth. More often than not they have grown up in the area and want to stay close to their family roots. The next group are the baby boomers that are downsizing and again want to stay close to their social networks. The last group are investors who want a safe blue chip investment that will always have strong tenant demand.

These three groups represent the most powerful financial muscle in our economy and they have the capacity to continue to drive growth in these markets.

There is no doubt that properties with these demographics factors driving their value will continue to grow in the coming years and this South Yarra property will be worth close to $1 million or more in the next 10 years or so.

The property pessimists will say I have just picked the eyes out of the market and isolated one example of a property that will preform well in coming years. That is precisely what I have done because identifying the small percentage of good assets in any market is exactly what educated investing is all about.