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Does home size matter for a mortgage?

Does home size matter for a mortgage?

When it comes to property investment, size isn’t all it’s cracked up to be. At least not in the traditional perception of big is best. One-bedroom apartments, particularly in inner city areas, are increasingly popular with tenants – and investors are taking note.

One-bedroom apartments are often cheaper to buy than their two-bedroom counterparts, but can achieve similar rents and therefore provide a better return on investment, according to property experts.

“Traditionally if you compare studio apartments, one-bedroom apartment and two-bedroom apartments, the studio has the strongest rate of return, followed by the one-bedder and then the two-bedder,” says real estate agent Mark Dawes, director of Richardson & Wrench South Sydney.

In the inner Sydney suburb of Potts Point, Sydney Links is currently selling a one-bedroom apartment for offers above $350,000 with a potential rental return of $470 per week – which would deliver an impressive rental yield of 6.78 percent.

From a capital gains perspective, one-bedders are also comparable to larger apartments. While in the past, two-bedroom apartments would provide a better capital gain growth than one-bedders, that is no longer the case, according to Dawes. “They tend to rise at the same rate,” he says.

On the other hand, some lenders may be less willing to approve a home loan for a studio or small one-bedder apartment, as size requirements may apply. So it’s worth shopping around, comparing home loan features and asking these questions before you get your heart set on a property!

Trend towards small

The popularity of smaller apartments can be explained by the shrinking size of Australian households. Census figures from the Australian Bureau of Statistics show that the proportion of one-person households increased from 16 percent of all households in 1976 to 24 percent in the 2006 Census, and is expected to rise to 28 percent by 2031. The proportion of two person households increased from 28 percent of households in 1976 to 34 percent in 2006.

Property developers have also caught on to the trend, with a rise in the number of one-bedroom apartments being built. Currently attracting a lot of interest, a new development in Surry Hills, called Short Lane, is made up entirely of one-bedroom apartments.

On the other side of Australia in Perth, new-build studios and one-bedders are also popular, according to the Urban Development Institute of Australia, with 28 percent of recent new apartment sales being studios and one-bedroom apartments.

A question of budget

For most investors, the size of the property they buy comes down to budget, Dawes says. “If you’re going into the inner Sydney market with $500,000 to spend, you don’t have a choice – you’ll be buying a one-bedroom apartment. But if you have a higher budget, you might as well buy a two-bedder with interest rates being as low as they are now. It will give you more scope for growth.”

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