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The ‘Must Have’ Investment in any Property Portfolio

The one-bedroom apartment is making a significant comeback as a great option for an investment property. This is especially true in Sydney. Capital growth has spiked in the past five years, leading some to describe studio and one-bedroom apartments as the Cinderellas made good. In this article, we look at the key drivers of capital growth and why one bedroom apartments are excellent choices for property investors.

The Growth of the Small Apartment

Buying small apartments is no longer the poorer alternative to townhouses or houses in Sydney. Over the past few years, capital growth in apartments has outperformed that of many houses. Prices at sale have consistently outperformed expectations. By all indicators, especially demographic factors, the new status of the small apartment is a permanent one.

One bedroom apartments have grown by as much as 24 per cent, in some cases within a short time frame of 5 years. They’re also some of the most quickly rented-out properties, according to estate agents. Astute investors are quick to snap up one-bedders, especially those around $600,000 to $700,000 price mark.

While the growing popularity of one-bedroom apartments with both home-seekers and investors has contributed to capital growth and excellent rental yields, it can also be seen as a sign of deeper demographic factors at work.

Key Driving Factors

Demand has been driven by two things. Firstly, it’s interesting to note that the fastest-growing household type in Australia is the single person household. The one person household is projected to grow at an average of 2.2 per cent per year, from 1.9 million in 2006 to 3.2 million households in 2031. This change will represent a jump from 24 per cent to 28 per cent of household types.

Secondly, couples without children – who are most likely of all family types to choose one-bedroom apartments – are the fastest growing family types in Australia. They’re projected to grow by 1.4 million families from 2006 to 3.5 million families in 2031. This means couples without children are to be more numerous than families with children.

These demographic trends have meant that one-bedder prices for the city and eastern suburbs of Sydney have risen 5.7 in the past year, according to Australian Property Monitors statistics. For the same period, prices for two-bedroom apartments only rose by 0.5 per cent and three-bedroom apartments, by 4.1 per cent.

Solid Investment Vehicles

One-bedders present as solid property investment vehicles, with very low vacancy rates and high rent yields relative to outlay price.

Below are some region and suburb specific trends for capital growth rates for Sydney’s one-bedroom apartments, compared with two- and three-bedroom apartments. As they show, one-bedroom apartments have dominated the apartment market for capital growth.

  • Sydney overall. The median price for one-bedders has risen from $319,000 to $412,000, a jump of 29.15 per cent. Other types of units combined have yielded a median price growth of 23.1 per cent.
  • Lower North Shore. One-bedroom apartments have risen by 1.8 per cent. For two-bedrooms in the same area, there was an average fall in prices of -2.6 per cent. Three-bedroom apartments fared worse at -3.6 per cent.
  • Bankstown. In Bankstown the rate growth for one-bedroom apartments was an incredible 21.7 per cent, compared with 7 per cent and 3.3 per cent for two and three-bedroom apartments respectively.

What is very clear is that as capital cities become international cities, due to higher population densities, the one-bedroom apartment genuinely becomes one of the smarter investment choices.