With the escalation of property prices in Australia’s two largest cities, many first home buyers and investors are being forced to consider the purchase of studio apartments to meet budget requirements. How does this type of investment perform and what are the limitations?
A studio apartment has 1 bedroom, combined with the kitchen, living, etc. in the same room. They can be anywhere from 15sqm – 40sqm internally. There are two major factors to consider with studio apartments that may not be at first apparent when looking at market performance in isolation; lending and future resale.
Lending on studio apartments:
Most banks will only lend 70% or below of the value of the studio, and some won’t even lend at all below a certain square metre (sqm) size. It means a purchaser must come up with a 30% deposit + costs, instead of the usual 10 or 20%. This requires a certain type of borrower and may impact the future buyer market. It also says that the banks are also wary of this type of security against a loan.
Future resale of studio apartments:
While it may appear ‘cheap’ to buy comparatively to the rest of the market, it may be difficult to sell, as most people won’t want to contribute the 30%+ deposit, or may struggle to get finance at all. Therefore, the potential market of buyers shrinks, creating less demand. Demand is vital in creating capital growth and a successful investment. For this reason, you will often find studio apartments performing well below the suburb’s average capital growth rates.
Invest in a studio apartment
There are many strategies available to invest in property. If you are on a budget, rather than taking the perceived easy route and buying a studio in your hometown, explore more saleable, and in demand dwelling types for better results.
To discuss this strategy with us further, please contact a Client Manager at Sound Property on 1300 655 899 or admin@soundproperty.com.au
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.