Micro apartments: big demand in small apartments is changing the face of regional investing in Australia By Kirsten Craze

A surge of interest in micro-apartments located in certain areas is piquing the interest of some property buyers who have been priced out of major markets.
Micro apartments: big demand in small apartments is changing the face of regional investing in Australia    By Kirsten Craze
Micro-apartments have been a unique type of real estate traditionally confined to high density city centres. 

But surprisingly – in the age of Covid when Australians are falling in love with space — the desirability of these pocket-sized properties is rising, even in postcodes far from the capitals. 

A surge in the demand for regional micro-apartments is piquing the interest of some investors who have been priced out of big city markets. 

For between $850,000 and $1 million – a little more than the $825,514 median price of a single unit in Sydney, according to CoreLogic data — 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 micro-apartment demand had surged within weeks of the first lockdown in 2020 as had the desire of tenants to ditch their share house lifestyles. 

“Since the Covid outbreak began last year, our micro-apartment waiting list has doubled. The appeal of co-living has died,” he said. 

“Given the challenges we’ve all been going through, particularly in Victoria over the last 18 months, people want an alternative to 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 this provides people with their own private space to live in without necessarily having to share facilities with a lot of people. 

And that then offers an opportunity for investors who want a better cashflow than they might be able to get from a typical rental house,” he said. 

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

Mr Vila said that while rents are on average much lower than a regional house or inner city apartment at about $230 a week, the volume can pay off for investors. 

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

“But it also provides a second benefit because there is nine different rentable spaces. In traditional rentals if whoever is living there moves out, then you basically lose 100 per cent of the income. 

“Whereas, if one or even two people move out, you might lose 10 or 20 per cent of the income. So it provides a little bit of resiliency from an investor’s perspective,” he said. 

While many Australian landlords opt for a negatively geared investment strategy, Mr Vila said micro-apartments were an option for investors who want cash-flow today rather than wait until the day they sell to reap the rewards of capital gain. 

This weekly income, rather than an annual tax break and a potential future windfall, was what drew investor Janine Smith, 62, to the micro-apartment concept. 

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

“Whereas before, I had a property I owned outright that was worth a fair bit of money, and my super. I would’ve 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 of property investment fit 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, but put it in super instead. It’s not that I have anything against super, but I have no control over it. I love to be in control of my life,” she said. 

As a bookkeeper, Ms Smith said she and her sons, who both work in the building industry, did months of homework before building their micro-apartment block of nine in Morwell, Victoria. 

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

“It wasn’t just a case of picking out a block of land, we looked at the area as well. Around Morwell you’ve got a hospital that’s just had a big renovation and I knew that hospitals quite often have staff who’ll be sent there on six to 12-month contracts. 

“They’re looking for small places to live in; they don’t want a property that’s got lawns to mow and maintenance because they’ve usually got quite long hours. There is also a government hub going in there,” she added. 

With the average apartment size between 24sq m and 27sq m, the footprints may seem small, but Mr Vila agreed the compact size is the perfect fit for some tenants. 

“For the typical Australian, 27sq m might not feel that big, but someone could be moving from a 12sq m bedroom in a house where they were sharing with several other people. So for them it actually could mean more personal space, not less,” he said. 

The self-contained apartments being built by Stone Horizon are primarily in regional Victoria because the state’s building regulations are more compatible with the type of construction than other states according to Mr Vila. 

“The regulatory framework we use to build these properties exists in Victoria, but doesn’t exist in this form anywhere else. 

You can do something similar in NSW under the New Generation Boarding House Scheme, but regulations keep changing which makes it a lot harder for investors. 

Then you’ve got similar regulation in Queensland, but it can be different from council to council. We’re hoping that we can look elsewhere soon,” he said. 

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