To granny flat, or not to granny flat?

“The quiet hand of the government has always been there in property markets but it’s a lot more than quiet these days,” said Mr Tarrant.

In recent years, the trio noted that government intervention into both affordability and housing supply has been on the rise, especially when it comes to the construction of secondary dwellings like granny flats.

However, the three property experts warned investors to resist the temptation to react to these policy changes without thinking it through.

“You should not be reactive to these government changes or these legislative changes,” warned Mr Kumar. He explained that while today’s rental market may be characterised by a severe undersupply, “whatever goes up does come down”.

“If you’ve just squeezed on a secondary dwelling on your lot because you could under legislation, it might turn a really good investment into a really bad investment,” said Mr Kumar, giving the example of Victoria’s recent relaxation of granny flat laws.

The trio warned that squeezing secondary dwellings onto small suburban blocks might work for the desperate tenants of today, but these properties would lose popularity in a more abundant market.

For two separate dwellings to be built on a 300-square-metre block, “they would almost be opening and shutting each other’s windows,” said Mr Waters. “In today’s market that will fly, but in tomorrow’s market it probably won’t.”

“You might get three, four, five years of good rentals, but you’re probably going to be left with something you can’t find a tenant for,” agreed Mr Tarrant.

For those who want to bite the bullet and construct a secondary dwelling, Mr Waters has one piece of advice: “Make it good.”

He recommended that the secondary dwelling be aesthetically pleasing, well-separated from the main dwelling, and have adequate parking, so that it could continue to hold its own in a normal or oversupplied market.

“It needs to look and feel like a small house,” added Mr Kumar. If not, he warned that investors will be left with a continual turnover of new tenants, which “would be worse than having just a single house with no secondary dwelling”.

Listen to the full conversation with Right Property Group here.