What does it cost to build a granny flat?

A granny flat can be so much more than an affordable home for older family members. It can be a teen retreat, a hobby space, a home office and even a money-spinner if you rent it out. The question is, how much does a granny flat cost, and will it add value to your home?

According to the Housing Industry Association, granny flats are becoming increasingly popular, with thousands constructed each year – especially in New South Wales. That’s because planning laws are being altered in some states and territories, making it easier to build a granny flat or secondary dwelling in your backyard.

That said, 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 will it cost to build a granny flat?

The cost to build a granny flat depends on what you have in mind for the finished project. The choice is wide, ranging from a custom-built granny flat through to a prefabricated kit or flat-pack granny flat.

Whatever you choose, it’s important to factor in all the costs required to make your granny flat a fully functioning dwelling.

As a guide to the cost of a granny flat, 1-bedroom granny flat kits can be advertised for less than $16,000. However, this may not cover the total cost to completion. It could cost another $10,000 plus for the dwelling to include basics like a kitchen or bathroom. Even then, the price may only include the materials you’re given – it may not factor in additional costs such as a cement slab, connection of utilities or council fees.

According to trades site hipages, with kit home builders you can be looking at a cost of $81,000 for a 38m2 granny flat, rising to $95,000 for a 50m2 dwelling or $120,000 for a 71m2 granny flat.

Taking a closer look at the cost, combined analysis by CoreLogic and Archistar suggests that constructing a self-contained 1-bedroom granny flat would require an initial investment of around $120,000 and you can add an extra $80,000 for a 2-bedder.

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 so you are getting a true picture of the final cost.

How can you finance a granny flat?

There are many ways to finance a major home improvement project, including:

  • Savings: Drawing on a savings account means you do not have to take on debt to finance the job, which means you do not 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 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.
  • Personal loan: Depending on your personal circumstances and the cost of the job, you may be able to consider using a personal loan to fund the work. 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 (read the card’s Key Facts Sheet or the Product Disclosure Statement for the insurance cover to find out the conditions of the policy). 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.

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

On the plus side, research by CoreLogic and Archistar found that across our three biggest state capitals – Sydney, Melbourne and Brisbane, almost 600,000 properties have scope for a granny flat or self-contained two bedroom units. However, this doesn’t always mean you can automatically put a granny flat on your property.

A starting point to determine whether or not you can build 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, and the dimensions of the granny flat.

Most states and territories specify a maximum size for a granny flat. In NSW, for example, the site must be at least 450m2 in area, have a 12m street frontage and the granny flat can be no bigger than 60m2.

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 450m2 and the granny flat is no bigger than 80m2.

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?

The Corelogic and Archistar analysis found a granny flat has the potential to boost an existing home’s value by around 30%. That means for a house worth $500,000, building a granny flat could add around $150,000 to the value of the property. But it pays to do some research, as not everyone is interested in buying a home with a granny flat out the back.

Have a chat with local real estate agents to get their opinions about whether it 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.

Main image source: By PhotoMavenStock/Shutterstock.com.

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