Micro apartments: strong demand for small apartments is changing the face of regional investment in Australia

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A renewed interest in micro-apartments located in certain areas is arousing the interest of some buyers of properties that have been excluded from the main markets.

Micro-apartments have been a unique type of real estate traditionally confined to high-density city centers.

But surprisingly – in the age of Covid where Australians fall in love with space – the appeal of these pocket properties is increasing, even in zip codes far from capital cities.

A sharp increase in the demand for regional micro-apartments is arousing the interest of some investors who have been excluded from the markets of large cities.

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For between $ 850,000 and $ 1 million – slightly more than the median price of $ 825,514 for a single unit in Sydney, according to data from CoreLogic – investors can get eight to nine micro-apartments (also known as studios ) for the price of one.

Henry Vila, managing director of developer Stone Horizon, said demand for micro-apartments has increased in the weeks following the first foreclosure in 2020, as has tenants’ desire to give up their shared lifestyle.

“Since the start of the Covid epidemic last year, our waiting list for micro-apartments has doubled. The allure of coliving is dead, ”he said.

“Given the challenges we’ve all faced, especially in Victoria over the past 18 months, people want an alternative of three or four people renting a house together, which was the default approach for many tenants. . “

“A lot of them don’t feel like sharing, so it gives people their own private space to live without necessarily having to share facilities with a lot of people.

And that then provides an opportunity for investors who want better cash flow than they could get from a typical rental home, ”he said.

Stone Horizon, the micro-apartment arm of Victorian developer Tresco Group, recently completed a micro-apartment building in Shepparton where 58 requests for just nine rooms were received over a weekend.

Mr Vila said that while rents are on average much lower than for a regional house or a downtown apartment, at around $ 230 per week, the volume can be profitable for investors.

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“You have nine apartments, so by the time you put it all together, the yield is probably five to seven times what it will be for a normal house,” he explained.

“But it also offers a second advantage because there are nine different rental spaces. In traditional rentals, if the person who lives there moves, you essentially lose 100% of the income.

“Whereas if one or even two people move, you could lose 10 or 20 percent of your income. So it offers a bit of resilience from an investor’s point of view, ”he said.

While many Australian homeowners go for a negative investment strategy, Mr Vila said micro-apartments are an option for investors who want cash today rather than wait until the day of sale. to reap the fruits of surplus value.

It’s that weekly income, rather than an annual tax break and potential future windfall, that drew investor Janine Smith, 62, to the micro-apartment concept.

“I invest with my two sons. They are obviously still working, but I am semi-retired. Instead of having all of my money in an asset that I live in, I decided that I wanted to be able to use my money to buy something that will give me a really good return so that I can enjoy my retirement ”, a- she explained.

“Whereas before, I had a property that I owned outright that was worth quite a bit of money, and my super. I would have lived reasonably – don’t get me wrong – but I believe I can live a lot better this way, ”she said, adding that the alternative way to invest in real estate was in line with her philosophy. .

“I’ve always been happy to try different things. When I bought my last investment property, my accountant told me not to do it, but instead put it in super. It’s not that I have something against great, but I have no control over it. I like to be in control of my life, ”she said.

As an accountant, Ms Smith said she and her sons, both of whom worked in the construction industry, did months of homework before building their new micro-apartment building in Morwell, Victoria.

“I did all the numbers and it went really well for us.

“It wasn’t just about choosing a pitch, we also looked at the area. Around Morwell you have a hospital that has just undergone a major renovation and I knew that hospitals quite often have staff who will be sent there on six to twelve month contracts.

“They are looking for small places to live; they don’t want a property that has lawns to mow and maintain because they usually have long working hours. There is also a government hub there, ”she added.

With the average apartment size between 24m² and 27m², the footprints may seem small, but Mr. Vila agreed that the compact size is fine for some tenants.

“To the typical Australian, 27m² may not seem that big, but someone could move from a 12m² bedroom to a house where they shared with several other people. So for them it could actually mean more personal space, not less, ”he said.

Self-contained apartments built by Stone Horizon are mostly found in the Victoria area, as state building regulations are more compatible with the type of construction than those in other states, according to Vila.

“The regulatory framework that we use to build these properties exists in Victoria, but does not exist in that form anywhere else.

You can do something similar in NSW under the New Generation Boarding House Scheme, but the regulations keep changing, making it much more difficult for investors.

Then you have a similar regulation in Queensland, but it can be different from council to council. We hope that we can look elsewhere soon, ”he said.

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