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The rise of micro-apartments

Posted by admin on September 13, 2018
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With the rapid increases in property prices in cities like Sydney and Melbourne in recent years, the need for affordable property is higher than ever before. Although property prices have softened in recent months, high density living, and the rise of micro-apartments is a potential answer to securing affordable property that’s close to all of the amenities people want and need.


Given the smaller property size, the sale price of micro-apartments presents a much lower entry point for property investors to gain exposure to the property market. Are micro-apartments a good investment though or are investors better off focusing on more traditional property types?


One of the biggest challenges investors may face if they’re interested in purchasing a micro-apartment is securing finance. Analysis by property research company, RiskWise found that banks enforce strict lending criteria for properties with floor plans under 50 square metres. To secure a loan for a micro-apartment, the loan-to-value ratio would likely need to be less than 80 per cent, meaning you may be asked to pay a deposit of more than 20 per cent.


The key reason why lenders are reluctant to provide loans for micro-apartments is the issue of resale. With micro-apartments there’s a potential risk of oversupply. For that reason, some banks have postcode blacklists detailing where there is a current oversupply. This means you’ll likely have to pay a large deposit to secure a loan for a micro-apartment or have your loan application rejected entirely.


According to RiskWise, buying micro-apartments off the plan is one of the riskiest ways to purchase a micro-apartment. This is due to the limited demographic that micro-apartments are suitable for and the potential for the property market to change dramatically before the development is complete.


For investors who have a micro-apartment in their portfolio, turnover also becomes a key risk especially for couples who may realise the space is too small.


While micro-apartments could be a risky investment, supporters of this dwelling type have said that with intelligent design and mandated liveability requirements, micro-apartments could be the solution for people who want to live in affordable homes close to major cities. The only design standard for small properties mandated in Australia currently is the New South Wales Government’s regulation that studio apartments must be at least 35 square metres.


Before investing in property, make sure you seek the advice of a legal and finance professional to assess your individual situation and investing needs.

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