If you are considering buying a property and holding it for at least five years, you should apply the 1% rule.

The 1.0% rule is to try to buy a property that will achieve at least an annual price growth rate of 1.0% higher than the market average for the purchase price of your home.

For most people an additional 1.0% additional gain each year does not seem a lot of money. However, if you consider that the median house price is now around $450,000, this could mean more than $20,000 in additional value of the home at the end of five years if you select a higher growth property.

If you select a median priced property that achieves 2.0% above the average price growth rate then this could generate over $40,000 in capital value over 5 years.

Over the last five years, most properties in Perth have achieved an annual median price growth rate of around 20% depending on location because of a sustained boom in the real estate market.

However, over the next five years, it is expected that annual price growth rates for Perth house values will return to long term averages which can range from between 6% to 10% depending on the location of the property.

Rising interest rates will mean that properties located in areas of high demand will outperform properties located in areas which are least attractive to property buyers.

Historically, these locations in high demand tend to be near the city, river and ocean and generally properties located in these areas have achieved annual price growth rates of more than 2.0% above the market average price growth rates for homes in Perth.

This trend has become more apparent during the past year with the riverside suburbs of South Perth and Como, for example, achieving annual price growth rates in their median house price of over 20.0% while growth rates of house prices in more inland suburbs have been more subdued.

You do not need to necessarily purchase an expensive property in a good location to achieve higher rates of capital growth than the market average.

For example, astute first home buyers and investors can still purchase older style apartments in riverside suburbs for under $350,000. Because of their unique location, these older style units often achieve higher levels of capital growth compared to much larger family homes located in the outer suburbs of Perth.