I
t ’ s no secret that our cities are becoming more crowded by the day . With an ever-growing number of professionals looking to move closer to the action , central accommodation is available only at a premium . Paired with this is the ever-expanding “ missing middle ”, those earning more than the R3 500 a month maximum to receive a housing subsidy , but not enough to qualify for a bond . As a result , more and more South Africans are renting . With demand for affordable apartments within urban centres exceeding supply , new solutions need to be brought to light .
One example is the micro-apartment . According to George Radford , IP Global ’ s Head of Africa : “ micro-apartments , apodments or microflats , typically measure under 25 square-metres and are self-contained living spaces – purpose built by developers to accommodate sitting space , dining space , sleeping space for one or two people , a bathroom , kitchenette and sometimes a balcony for outdoor space .”
For many , the only option when it comes to living close to work is to share a space . Alternatively , they have peak traffic to look forward to . While it may be too soon to tell if micro-apartments are here to stay in South Africa , it ’ s become popular in other markets .
According to US-based Buildium ’ s research , “ nearly 1 in 4 renters of conventional units express interest in renting a micro-apartment . They ’ d be willing to sacrifice space for 20-30 % lower rent , a highly desirable location , and the ability to live alone .” Their research also states that “ 82 % of current micro-apartment dwellers weren ’ t intentionally seeking out smaller units . Rather , location was the deciding factor for 97 % of these renters , in addition to factors like proximity to work and public transit ; neighbourhood amenities ; the ability to live alone ; and price .”
In the UK , research by consumer group Which ? found that 8,000 new micro-homes were built in 2016 . UK-based Gladfish highlights the things to look for when investing in a micro-apartment :
• New build or newly refurbished
• In a great location , near to transport and lifestyle amenities
• Well-appointed and imaginative use of space internally
• Modern appliances
• Ideal for singles and couples
• In prime central London , a rental value
NEW DEVELOPMENTS
under £ 750 per week will attract the highest demand Over in Germany , the trend is also growing strongly , with Berlin Best Invest reporting that there are currently around 25,000 micro-apartments in the country , with many more set to be built by the end of 2018 .
Ian Sigmund from IP Global in Germany echoes this , “ In Berlin , we recently purchased dozens of units from a developer in Neukölln , a district which just five years ago was an area notorious for crime but which is now experiencing wide-spread gentrification . With its new-found popularity , has come welcome news for investors . Neukölln has the second highest rental growth in Berlin only behind Friedrichshain , its more developed neighbour , and popularity keeps increasing as more shops , restaurants , bars and cafes keep opening week on week . As a result , the studio apartments have high yields – up to 6.4 % compared to the 3.0 % - 3.5 % average in Berlin .”
According to Robin Burinskiy from Buildium : “ In comparison with previous generations , Millennials are less inclined to stay in one location or one career in the long-term . They ’ re waiting longer to settle down , so they ’ re living alone longer . They want to live , work , and play in the heart of the city . The best case scenario is to find a studio apartment in a vibrant neighbourhood that ’ s convenient to work , and also allows them to spend their free time how they choose .”
With South Africans continuing to move to cities for work and school , new solutions such as micro-apartments are becoming increasingly attractive .
SOURCES IP Global , Buildium , Berlin Best Invest .
THE CASE FOR INVESTORS
For local investors looking to dip their toes into offshore property , these smaller apartments are a compelling option .“ Many investors are looking to diversify their portfolios by acquiring small properties in trendy cities or perhaps they ’ re looking to purchase an apartment for their children studying overseas . Either way , micro-apartments offer a more accessible foot in the door into some of the most exciting cities in the world ,” says Radford .
The small square-meterage of the units allows owners to rent them out at costs that , compared to the average property or full-sized home , are relatively high per square-metre , but that are also affordable to tenants who might not be able to afford to live in a larger property in a central location .
The limited space in the apartments also makes them the perfect choice for those who live alone or who are moving away from home for the first time and don ’ t yet have lots of possessions . These groups appreciate the unique design of the apartments and the innovative storage solutions that can be found in just about every corner of the units .
As property prices continue to soar in key city-centres more and more people find themselves members of what is referred to as ‘ generation rent ’. Unable to afford deposits and bond repayments , if indeed they qualify for bonds in the first place , a growing generation of people struggle to make the jump from renting to owning property . Micro-apartments might just be the solution .
“ We ’ re seeing micro-apartments as meeting the needs of numerous types of investors . As hot-spot cities continue to attract those keen to be close to work , transport links and popular restaurants , the attractive rental yields these smaller spaces offer plus the demand for them from the rental market , all translate into a trend that is only in its infancy ,” says Radford .
SA Real Estate Investor Magazine DECEMBER 2017 / JANUARY 2018 37