What does it cost to build a granny flat?

What does it cost to build a granny flat?

A granny flat is often an affordable home for older family members. It can also be a teen retreat, hobby space, home office or a source of extra income if you choose to rent it out. But at a time when construction costs are rising, how much does a granny flat cost, and will it add value to your home?

According to the Housing Industry Association (HIA), granny flats – or ‘secondary dwellings’ – are becoming increasingly popular. This is largely because planning laws have been altered in some states and territories, making it easier to build a granny flat in your backyard. There are different rules for granny flats in each Australian state and territory, and guidelines also vary between local councils, so it’s important to do your research before you proceed.

How much does it cost to build a granny flat?

The cost to build a granny flat depends on what you have in mind. The choice is wide ranging – from custom-built granny flats through to prefabricated kits or flat-pack granny flats. Whatever you choose, it’s a good idea to factor in all the costs required to make your granny flat a fully functioning dwelling.

The cost of a granny flat, 1-bedroom granny flat kits to do yourself are advertised online for less than $30,000. However, this may not include all the costs for completion. You could face a long list of exclusions that include footings for the building, electrical wiring and plumbing. This highlights the value of reading the fine print to know exactly what you’re buying, and the additional costs you could face before your granny flat is ready to move into.

Whether you engage a local builder or a company that specialises in granny flats for your new build, think about getting several quotes, and make sure you are comparing them based on the same inclusions to get a true picture of the final cost of your granny flat. According to trades website HiPages, a granny flat can cost $80,000 – $160,000, depending on size and design. However, high-spec custom builds can easily cost over $200,000. Also, check what contract you will be signing, such as a ‘cost-plus’ contract or a ‘fixed-price’ (‘lump sum’) contract.

How can you finance a granny flat?

Savings

Drawing on a savings account means you don’t have to take on debt to finance the job. Without a debt you don’t have to pay interest or fees on that debt. This means that if you can afford to do so, paying for the job out of your savings will generally save you money in the long run.

Redraw/offset account on your home loan:

You may consider the option of making a redraw on your home loan or using funds saved in your offset account – assuming that your home loan has one or both of these features. It is wise to consider the long-term impact this could have on your mortgage, as paying for a job this way may increase the total amount you have to repay over time when interest is factored in.

Refinance your home loan:

If you have sufficient equity in your home you may be able to top up your home loan or refinance the mortgage. This can be a way of accessing home equity to pay for a granny flat.

Personal loan:

Depending on your personal circumstances and the cost of the project, you may be able to consider using a personal loan to fund a granny flat project. This could be a secured loan or an unsecured loan. It’s worth keeping in mind though, that interest rates are generally higher for personal loans than for home loans, and it’s a good idea to read the lender’s terms and conditions first. You can compare personal loans with Canstar.

Credit card:

It may also be possible, depending on the cost and your ability to repay the debt quickly, to pay for at least part of the job on a credit card. There could be some fringe benefits for doing so, such as extra insurance cover in some cases. Keep in mind that credit card interest rates are typically much higher than home or personal loans, and interest can quickly accumulate on large balances, so it is a good idea to weigh up your options and consider them carefully. If you don’t think you’ll be able to pay off the card’s balance in full each month, it may be worth re-considering whether a credit card is the right option for you. You can compare credit cards with Canstar.

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How can I find out if I can put a granny flat on my property?

The Housing Industry Association (HIA) says you’ll typically need a lot size of at least 450 square metres to be able to have both a principal home plus a secondary dwelling (granny flat) on the same block. 

A starting point to determine whether or not you can have a granny flat on your property is to contact your local council regarding the rules in your area. Considerations may include the size of your block, how far the granny flat is from the boundary and the existing house, the availability of a separate entrance, and the dimensions of the granny flat.

Do I need council approval to build a granny flat?

Whether you need council approval to build a granny flat typically depends on the rules in your area. In many cases you will need to apply for council approval, but in some areas you may not need approval as long as you meet certain criteria. If your property is in the Brisbane City Council area, for instance, and you’re building a granny flat for a member of your family, you may not need to apply for council approval if your land is larger than 450 square metres and the granny flat is no bigger than 80m.

Either way, a granny flat is a major investment and it’s a good idea to get in touch with your local council to find out what permits and approvals you may need.

Will a granny flat increase the value of my home?

A granny flat that is well-constructed and compliant with council regulations has the potential to add value to a property. But they won’t appeal to every buyer. Not every household will have this need, and some buyers may prefer more backyard space over a granny flat.

A good way to know if a granny flat could increase the value of your property is to have a chat with local real estate agents. Gather their opinions about whether a granny flat is a good option and if so, you could ask them for estimates of how much value it is likely to add to your place. In some cases, the cost of building a granny flat could be more than the value it adds to your property, but you may still want to go ahead if it suits your circumstances.

Capital gain tax and granny flats

There can be tax implications involved with granny flats. However, from 1 July, 2021, the Australian Tax Office (ATO) says capital gains tax may not apply if you build a granny flat for an older person or someone with special needs, as long as you have a formal written agreement in place. As tax matters can be complex, it could be a good idea to seek professional advice before building a granny flat.

Cover image source: By Martien van Gaalen/Shutterstock.com.