About a month ago, I spoke to an associate about investing in Australia. She is married to an Australian who lives near Geelong in Victoria. She is adamant about not wanting to invest in a 1-bedroom apartment in the city. When asked why, she said, ‘who’s going to rent one-bedroom apartments?’

The question shocked me a little. She mentioned she would like to get at least 2-bedroom ‘and above’. I found out later that she has actually related to what had happened in Singapore and assumed the same set of conditions apply to Australia.

IMO, a one-bedroom apartment in the city fetches good rental yield, it is also easy to get rid of if the investment turns pear-shaped. Property managers would agree that renting a one-bedroom apartment in the city out will be quite easy as it is a lifestyle product that appeals to singles or couples without kids who wants to enjoy city living.

In Australia, the demographic movements are quite predictable.  When kids gets to about 18, they moved out of their parents home in the suburbs and gather a few mates to rent in the city. They want to be close to where the action is. The idea of having pubs, trendy restaurants nearby is a major attraction for them. Once they met their other halves, they get married and moved into the suburbs. Depending on their income level, they may move into a more desirable suburb if they have the capacity, otherwise buying or renting a house in a ‘growth area’ seems like a possibility.

They have kids later on and when their kids grow up, the kids move into the city and when their kids are gone, they may stay put or move into the city depending on their level of comfort.

A one-bedroom apartment usually is the first to be rented out in good times. It is also the hardest hit during a recession. The one-bedder is not popular for families with more than 2 members. With the emergence of Internet, some couples even rent a 2-bedroom and make one of the rooms as a home office where they can work from home. Having said that, a one-bedroom is not without its value. The fact that it has only one bedroom means that it appeals to a smaller market segment. Then again, the market segment of singles/divorced is increasing at an alarming rate in developed countries like Australia.

Investors need to be aware of the dangers of buying a unit less than 50sqm. In the past, banks do not really favour financing such units. But with increasing construction costs and land costs, banks are now willing to look at it more favourably.

My take is: Study the demographics living in the area you are investing in and watch your budget. At the end of the day, investing in properties is down to dollars and sense and if one-bedroom is what you can afford for the time being, it may be the best decision given the present circumstances you are in.