The ups and downs of the granny flat boom

The ups and downs of the granny flat boom

Granny flats are blooming across Australian cities, for alternative living space, extra income, or as generational change prompts families to move closer together for help looking after the kids.

A granny flat, or adding a loft apartment, is a great way to maximise the usable space in your home but market commentators warn home owners to do their research before committing to adding a separate quarters to their property.

Observers say buyers can be put off by the amount of yard space taken up by a granny flat, and often don’t recognise the value the extra living area could represent. Similarly, a new dwelling could come with an overhead of capital gains tax once the house is sold.

However, granny flats that attract market rent can be a lucrative investment, with a $120,000 dwelling achieving annual rental yield of about 15 percent. Domain reports average depreciation deductions, including a proportion of utility bills, borrowing costs, and land rates, can add up to around $5,300 in the first year to more than $23,700 over five years.

NSW Government statistics show more than 100 granny flats are being built each week in Sydney, three times the rate of construction five years ago. NSW also allows for ‘Fonzie’ flats to be included over garages in new homes, which can be sold separately to the primary residence.

Regulations on the separate rental of granny flats differs in each state. WA, NT, TAS, and ACT allow separate rental agreements for granny flats but QLD, VIC, and SA do not.

The average granny flat costs about $150,000 to build and could take about four months to complete, and there are cheaper options. A flat-pack granny flat kit can be purchased online for about $10,000, but they would require DIY construction and may not be as sturdy as a unique-built dwelling.

There is also a kit option which is purchased as a package for about $70,000 for 60sqm, then constructed by a professional. Whatever option you are considering, make sure you make allowance for the access the building work will require, as it may take a crane to deliver materials to the site over existing buildings.

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