Stylish studios finding new buyers, new marketing and a new name

As Australia’s incessant undersupply of homes continues to drive up property prices, more renters and buyers are looking to studio apartments for a more affordable entry into the property market.

Sometimes barely bigger than your average hotel room, studios often get a bad rap as a risky investment because their size limits their market appeal. Or so the argument goes. But as Australia shifts towards high-density living, will studios become a more viable option?

Louis Christopher, managing director of property forecasting company SQM Research, says the long-term trend towards smaller apartments will increase the appeal of studios. “We’ll see more of this type of stock in the long term. The trend is towards smaller and smaller accommodation in capital cities around Australia,” he says.

“The trend is going to be with us for some time. There are quite a few studio apartments being built in Melbourne, followed by Brisbane.”

Property developers such as Frasers Property Australia have already tapped into the compact living trend and are offering a range of options, including studios, in new developments.

“Several factors are coming together to drive the trend toward smaller properties, and it’s clear this trend is continuing,” says Adam Sparkes, group sales manager at Frasers. “Firstly, smaller properties are more affordable, providing an entry point for first-home buyers and property investors.

“For investors, the rental return is often higher than for a larger property. Finally, demographic trends are toward more single-person households, and single residents are leading the charge toward inner-urban life, with the shopping, dining, transport, culture and easy access to everything that goes with it.”

At Frasers’ Park Lane development on the old Carlton United Breweries site in Sydney’s Chippendale (pictured), one-tenth of the apartments on offer are studios. Marketed as “one-bedroom suites”, the apartments are open-plan spaces with designated sleeping and living zones. Prices range from $530,000 to $575,000. In Perth, at Frasers’ Queens Riverside development 8% of available apartments are studios, priced from $340,000 to $410,000.

Sparkes says despite resistance from the banks, studios appeal to many different buyers.

“A really diverse group of people are attracted to smaller apartments,” he says. “First-home buyers love them because they’re relatively affordable and yet beautifully new. Retirees buy them for a city crash pad. International businesspeople buy them as a Sydney base, far more personal than a hotel room. Investors include them in their portfolio because of high yields and the high demand for these properties.”

Six of the 31 apartments at Oliver Electric Co development in Sydney’s Alexandria are studios, and three of them sold on their first weekend on the market.

“From an investor’s perspective, studios are affordable but the rental yields are often higher than one- or two-bedroom apartments,” says Andrew Donnelly, CEO of Whiterock Capital Partners, which is marketing the development.

“The only issue is bank funding. Banks still require a higher loan-to-value ratio than they do for bigger properties so investors and buyers are required to save upwards of 30% for the deposit. But as studios are more affordable, this may not be a problem.”

An ANZ spokeswoman says the bank offers a maximum loan-to-value ratio of 60% for small residential apartments under 40 square metres.

“Lending for property is assessed on a case-by-case basis and is dependent on a number of factors, including how the loan will be serviced, the level of equity the customer has, the value of the asset for which the loan is used, as well as the resale value of the property,” she adds.

Banks have traditionally been reluctant to grant home loans for studios because it’s harder to secure mortgage lender’s insurance on properties smaller than 50 square metres. Lender's mortgage insurance covers the lender for any shortfall that may occur if a mortgage holder default on the loan and the property is sold at a loss. As the traditional thinking goes, studio apartments appeal to a limited market – families are ruled out, for example – so insurers and banks factor in the risk that it may be harder to sell studios in a quick sale.

Real estate agents, however, say studios in desirable city locations sell fast. Luke McDonnell, an agent with Richardson & Wrench Elizabeth Bay in Sydney, has sold five studios in the past four months. “They are always quite easy to sell. Studios have always been popular in this area,” he says.

“They are a good first entry point into the market and vacancy rates are very low.”

Not surprisingly, today’s studios are in a different league from those built at the start of last century. While older studios hover around 20 square metres, the internal living space of studios in new developments is often twice that size. At Queen’s Riverside in Perth, studio apartments boast 41 square metres of internal space and a balcony measuring nine square metres. Studios in the Oliver Electric Co development offer the same dimensions.

Sparkes describes Frasers Property’s studios as “luxurious homes, intelligently designed within a smaller footprint”.

Maximising light and storage are key considerations for developers. At Oliver Electric, studios are 4.2 metres wide. “That’s wider than some terraces in Paddington, Sydney,” Donnelly says. “Today’s studios are much more liveable, so they are more attractive to owner-occupiers not just investors.”