Law permits granny flats to be a source of rental income

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For SME business owners looking for an avenue to invest their business profits, a good place to start could be their own back yard, writes property and development Solicitor Claire Day.

Thanks to the State Environmental Planning Policy (Affordable Rental Housing) 2009, the humble granny flat has become an income source as well as a means of increasing the availability of affordable housing in NSW.

Gone are the days when only a dependant relative could reside in the granny flat. The Policy allows homeowners to construct a second dwelling on the land where their principal place of residence stands. This second dwelling can be used to house a relative or as a rental for an unrelated third party.

A secondary dwelling is defined as a self-contained dwelling that is established in conjunction with a principal place of residence on the same land. It can be attached or independent from the principal place of residence.Claire_DayLG

Outlay to income ratio for granny flats has advantage for investors
The Policy came into effect in July 2009 so that affordable rental housing could be delivered and current stocks maintained.

The advantage for investors is simply the outlay to income ratio. The construction of a granny flat can be done for as little as $100,000, and of course no stamp duty, while the rental can be $150 upwards a week. Such investors can still have the benefit of tax deductions. By comparison, to buy a one bedroom apartment costs $200,000 plus and then the stamp duty on top of that.

There is high ongoing demand for affordable housing in NSW. By passing the Policy, the government aims to supplement public housing with affordable rental properties built by private investors.

Policy expands permissible use of granny flats
The Policy expands the use of the granny flat and also streamlines the approval process by deeming granny flats to be complying developments.

The key provisions of the Policy are:

  • Granny flats can be constructed in all residential zones (clause 20).
  • Granny flats are complying developments (clause 23).
  • There are now design guidelines for complying granny flats (clause 23).

Clause 20 of the Policy allows for construction of granny flats in general residential (R1), low density residential (R2), medium density residential (R3) and high density residential (R4) zones, or in large lot residential (R5) zones via development application.

Streamlined approval process for granny flats
Clause 23 of the Policy states that if the proposed secondary dwelling meets the criteria set out in clause 23, then it is a complying development. Complying developments are particular groups of developments which have been previously assessed by the certifying authority to have minimal or predictable environmental impact. This allows the approval process to be streamlined.

This means a development application for a complying granny flat may be approved by the relevant consent authority within 10 days, as only a complying certificate is required and not a development approval.

When is a granny flat a complying development?
The requirements for a granny flat to be a complying development include:

  • Complying with the general requirements of the Environmental Planning and Assessment Act.
  • Being located on a complying lot situated in a R1, R2, R3 or R4 zone.
  • Lot being minimum 450 square metres.
  • Not including the construction of a basement or alterations to existing basement.
  • Not including the erection of a roof terrace.
  • Satisfying development standards set out in Schedule 1 of the Policy.

So whether your proposed granny flat is for traditional use or a source of income, or both, the decision to capitalise your principal place of residence has become easier because you know there will be a financial return on your investment.

Claire Day is a property and development Solicitor at CBP Lawyers.

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