The Rise of the Granny Flat

Granny flats are increasing in popularity due to their worth as a high yielding cash cow and as a smart way to enter the investment market.

Thanks to government policy reviews, we have seen a building frenzy of granny flats across the nation due to increased demand and changing demographics.

Driven mainly by soaring property prices, the granny flat is definitely making a comeback with homeowners reaping the benefits of extra income and helping out the community with affordable housing at the same time.

Once the domain of elderly parents—it is now more likely to be taken over by grown-up children, AirBnBs, young couples and even single workers in their 20s and 30s are taking up occupancy where they are being cut out by the traditional housing market conditions.

The CoreLogic Perceptions of Housing Affordability survey found that instead of moving out and paying rent, more young people are living with their parents but in granny flats or converted garages.

The survey states that almost two-thirds of young people living at home cannot afford to move out, while 21 per cent of those aged 18 or older and living in the family home expect to stay there until they are at least 30 years old.

According to The Daily Telegraph, NSW Department of Planning and Environment data indicates that 4,818 new granny flats were built during 2014 which is nearly double the 2,867 built the previous year and three times more than the 1,511 built in 2010. In Sydney, the top local government areas that are experiencing a granny flat boom include Bankstown, Auburn, Fairfield, Penrith, Warringah, Holroyd, Parramatta and The Hills.

These statistics  coincide with activities we have observed from our investors.  Cohen Handler Buyer’s Agents this year have been increasingly busy sourcing and securing properties in areas offering both promising growth and granny flat potential.  Issues investors typically face when they come to us is identifying and sourcing lots which are granny flat compliant. Regulations and overlays vary significantly from one area to another so this is where an area specialist can help investors lower the risk and increase the return.

One client approached Cohen Handler wanting to purchase a property advertised as having ‘granny flat potential’.  The property was in fact affected by a flood overlay making it non-compliant.  Should the investors purchased this property the results could have been absolutely devastating.  Cohen Handler was able to advise against such a purchase and instead source a compliant property with a secondary dwelling within a couple of weeks of engagement that served the purpose well.

Changes in Legislation

The regulations regarding the construction of granny flats and who can live in them vary between states and local government areas. In Victoria, Queensland and South Australia there are strict regulations restricting the construction and private rentals of backyard properties.

In Victoria, most councils expect those wanting to build an extra home in their garden to prove that the future occupant is a dependent person, such as a teenager or disabled elderly parent. The granny flat must also be removed if the person dies or moves out.

However there are reports  stating that the government is considering changes to make sure planning rules keep pace with community need.  Some reports have already been adapted. In 2009, as a part of the New South Wales government’s diverse and affordable housing agenda, it overhauled its regulation governing granny flats, making them much easier and faster to build.

As part of the Affordable Rental Housing State Environmental Planning Policy 2009, otherwise known as the ‘SEPP’, there are a number of requirements related to granny flat development (see diagram below). Some of these include:

  • Lot size must be minimum 450 square metres.
  • Size of the granny flat maximum 60 square metres
  • It’s not permitted on environmentally sensitive land.
  • Heritage restrictions apply.
  • Once the development is completed only one principal and one secondary dwelling must exist.
  • Once the granny flat is constructed, the lot can’t be subdivided.
  • Granny flats are not permitted on strata subdivided lots or in community title schemes.
  • There must not be external alterations to the principal dwelling other than an additional entrance.

Western Australian, the Northern Territory, Tasmania and the ACT have similar regulations. All allow property owners to easily build a secondary dwelling and then rent it to those other than family members.

What’s the Cost?

As a rough guide, detached homes tend to cost around $100,000–$125,000 for around 60sq m and if tenanted can attract around $300 a week in rent—much more in Sydney depending on location. That’s an impressive rental return of approximately 15 per cent.

Fuelled by the building boom, the flats are becoming more sophisticated and modern in design accommodating the increasing demands for sustainable living, and quality fixtures and fittings.

5 Key Benefits of building a granny flat

  1. Buying or building a granny flat is usually a more affordable way to start an investment portfolio rather than buying a standalone property.
  2. You could collect anything from $300 per week rental income – depending on the location of your property, and the size/features of your granny flat.
  3. A legally-compliant granny flat could potentially increase the property’s total value.
  4. It’s quick and relatively straightforward to build a granny flat especially in NSW. If the plan complies with the planning rules there is no need to apply for a development application from council. Straightforward approvals take less than 14 days.
  5. Whether you choose a kit home or custom build, there are many designs available to you to complement your existing dwelling, which can be built in a relatively short period of time.

Risks involved

  • While some buyers will love the idea of a granny flat, others might not see it that way. It could potentially affect the property’s value and the number of interested buyers.
  • As you can’t subdivide the lot, there is also the loss of privacy that goes hand-in-hand with sharing your space with others and the complications that may arise from dealing with tenants.

With more Millennials being squeezed out of the housing market, the granny flat is providing a great solution and a win-win for tenants and homeowners alike.

If you are interested in finding an investment property that has ‘granny flat potential’, Cohen Handler’s expert team of buyer’s agents and property management team can help you with your requirements. Contact us now.

 

 

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