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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