There is no hiding the fact that one bedroom property is increasing in demand at a great rate and extensively regarded in some areas as the most ideal investment property.

The bigger question is how they will stack up against two bedroom and which one will provide better investment return. For the time being, let us analyse the three root causes of one bedroom popularity in the real estate market:

1. Affordability

The median price for one bedroom at present is similar to the median price for two bedroom ten years ago. It shows us how much the property market has travelled while the rate of income growth has always fallen behind. This widening gap leads to affordability problem that many of us face today particularly for first home buyers. One logical solution is to compromise on the space in return for lifestyle location, generating higher demand for one bedroom in the process.

[ Blogger note: Is the broader acceptance of apartment living in the modern generation driven by this affordability factor as well? ]

2. Better Yield

Consider a case study of inner city apartment where one bedroom is the most sought-after. A typical $850K two bedroom will provide a rental return of $750 per week or gross rental yield of 4.59%, while a typical $550K one bedroom will provide a rental return of $500 per week or gross rental yield of 4.73%. It shows the inherent characteristic of property market for units or apartments whereby the greater the number of bedroom is, the slower the rental is in catching up with the capital gain.

3. Diversification

The shortage of supply for one bedroom property in the 1990s or earlier suggests that many property investors today, mainly retirees and baby boomers, are seeking one bedroom as the best possible investment property with the primary intention of diversifying their property portfolio. The thrust in demand from this investment sector fuels growth in both prices and stocks level.

We will continue our discussion and analysis on this subject in the next article.

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