Micro Apartments in Perth Approved — But Should Lenders Be Concerned?
Are Micro Apartments in Perth the Future — Or a Financing Nightmare?
Perth has just approved a $22 million development featuring 88 apartments — 64 of which are a mere 26 square metres in size. To put that in perspective, it’s the equivalent of two car park spaces. While developers herald this as a solution to affordability and inner-city convenience, many lenders are quietly shaking their heads.
At face value, these micro apartments appeal to a niche market: FIFO workers, students, and young professionals without vehicles. They come fully furnished with all the essentials — bed, kitchenette, balcony, bathroom, and even shared amenities like a gym and rooftop terrace. But from a lending perspective, this raises more red flags than it does optimism.
The Problem with Size (Yes, It Matters)
Most major lenders, and even non-bank lenders like us at Renown Lending, adhere to strict minimum size requirements when considering apartments as security. Traditionally, this minimum sits around 40–50sq m internal floor space (excluding balconies) for conventional loans. Anything under that benchmark is considered "non-standard security" — which either attracts higher risk premiums, loan-to-value restrictions, or an outright decline.
At 26sq m, these Perth units sit well below traditional thresholds, which raises serious issues around valuation, marketability, and exit strategy. In other words — how do you recover your money if a borrower defaults and the property needs to be sold?
Resale Market or Rental Trap?
These units are being offered on a lease-only model, which essentially converts the entire development into a build-to-rent (BTR) investment. The issue is that, for a lender, the risk exposure is tied to ongoing tenancy — and that’s where things can become unstable.
Short-term lease models (three months to three years) are volatile. While they do appeal to transient populations like students or FIFO workers, they're inherently risky during economic downturns, or when rental supply increases and tenant preferences shift. The concern isn't just vacancy — it's income continuity.
Moreover, these apartments aren’t strata-titled or available for individual sale. That means the lender can’t even consider the break-up value of the building as a viable exit. There’s no granular asset recovery pathway here. If things go pear-shaped, there’s one big, difficult-to-sell asset.
Urban Planning vs. Financial Prudence
Let’s not forget the WA Planning Commission overruled local density rules to greenlight this project. That alone introduces planning risk and community opposition — both factors that can impact property value and political goodwill.
From a lender’s viewpoint, we're now looking at:
Tiny, non-conforming dwellings
Limited resale potential
High tenancy turnover
Developer overreach
Lack of individual title
That’s not a loan. That’s a gamble.
Affordability or Slumification?
And here's the broader societal concern: are we solving the housing crisis with quality, affordable solutions, or are we normalising substandard living just to fill a spreadsheet? We've seen where this leads — inner-city ghettos in London, overstuffed towers in Hong Kong, and vulnerable tenants living in over-leveraged assets.
Approving apartments that barely meet the definition of liveability creates a slippery slope. The housing crisis isn’t just about building more — it’s about building better. And from a lender's seat, better means: bankable, secure, and resilient to market shocks.
At Renown Lending, we support innovation in housing — but we also believe that responsible lending starts with sound fundamentals. If you're a broker or developer planning your next build, speak to us first. We’ll help you balance ambition with security — and avoid financing the next big mistake in Australian property.
