Sunday, March 20, 2016

Glut of one bedroom apartments?

Many of the new apartment buildings have a large number of small one bedroom apartments, that have been sold to investors.  These investors are hoping to rent them.  In the past, a one bedroom apartment gives a good rental return relative to purchase price.

However, at present, there is a problem.  There are too many one bedroom apartments.  Owner-occupiers prefer two bedroom  (or larger) apartments or houses.  There is less demand for short term rentals at present, where a one bedroom apartment was a good alternative to a hotel room.  And most young Brisbane renters prefer to share and rent large apartments or houses.

Some one bedrooms are sold without a car park, making them even less attractive.  In my view, a one bed with no car that is 60sqm or less in size is worth about $310,000.

If rents go down, which they will, then capital values will fall.

There may be one exception here.  Some of the riverfront older apartments, which have larger apartments (e.g. a one bedroom over 70sqm) seem to be holding up well.  See for example this apartment and this apartment in Admiralty Towers


dan said...

jeff, i think the essence of your argument is correct - but there will be two mitigating factors that will soften the blow. first, there is a demographic shift towards 1bdrm apartments, particularly when they are affordable. a lot of people don't share 2bdrm apartments because they want a flatmate - they do it because they can't afford the rent on a 1bdrm. secondly, i think that the 5%+ yields in brisbane are very very high (particularly for 1bdrm apartments) and owners will tolerate slightly higher vacancy and a reasonable drop in rents before it starts to flow through to capital values. whether these are enough to fully offset the oversupply is hard to say - but i think market conditions are certainly against 1bdrm units at present.

Jack Aranda said...

No new posts for 3 months, Jeff. Are you alive, well, in the country? Speedy recovery if anything's wrong.

Unknown said...

One room apartment main downside is the lack of space. However, with creative storage ideas, the place could still accommodate plenty of things and a number of people too. There will also be a preference for less items to be stored in the house so as to reduce clutters as much as possible so regular cleanliness can be maintained throughout.