What Is A Modular Home & Should You Invest In One?

Published 22 May 2022 - Updated 11 days ago

There’s a new kid on the block in Australian property and construction and it’s modular homes!

You may have heard of them. Modular homes have caught Australia’s attention and property investors have started to take an interest in them. If you’re looking to make your next savvy investment and are wondering what a modular home is - you’re in the right place.

In this blog, we explain what a modular home is, break down the pros and cons of modular homes, discuss why they’ve become so popular and help you determine whether they’re the right next investment for you.

What is a modular home

Most people live in conventional homes, or stick-built homes, which are, by default, constructed and assembled on the homeowner's land.

Modular homes, on the other hand, are residential structures that are put together in an assembly line factory or location other than their final resting place. 

Rather than ‘manufactured’, the term often used to describe how modular homes are built is ‘prefabricated’.
Prefabrication specifically means that the structures are made in an offsite location.

Modular homes are transferred onsite after they’re assembled. Once assigned, they’re meant to stay fixed on-site permanently. The mode of assembly is the main difference between conventional and modular homes.

Modular homes still require extensive planning and building permits that are required to build conventional homes. So, they’re just as safe and secure as traditional homes!

We’ll cover more on modular homes' benefits in later sections of this blog.

What is a modular home vs manufactured home

As we mentioned in the previous section, modular homes are such that - once they reach their final destination, they’re there to stay!

Manufactured homes, on the other hand, are not fixed to one location. An example of a manufactured home is a trailer. Trailers, unlike modular homes, can be moved around frequently.

Why are modular properties becoming more common?

Modular homes are starting to make waves in Australia - but they’re actually not that new! They’re not very common but modular homes have actually been around in Australia since the mid 1800s.

Recently, Australians have started to take an interest in modular homes, and this interest is only going to become keener!

According to Mordor Intelligence, prefabricated markets currently represent 3% of Australia’s construction industry, or 4.56 Billion AUD out of the industry’s 150 Billion AUD.

By 2025, prefabricated building market share will increase to 15%, which will result in adding 30 Billion AUD to Australia’s economy! By 2027, experts predict that 1 in two homes will be modular!

These numbers are significant - so what is it about a modular home that’s captured the Australian public’s attention?

One of the major reasons that modular homes are experiencing a boost in popularity is because the Australian government is encouraging people to build modular homes. That, in turn is for a few reasons:

  • Carbon footprint
  • Housing demand
  • Cost Efficiency

Let’s explain these a bit more.

Carbon footprint

As modern nations seek new and innovative ways to reduce their carbon footprint and reduce CO2 emissions, the Australian government believes that making a place for modular homes in the construction and housing industries would be an effective way to do that.

According to the Mordor intelligence report, the Australian government has been giving generous grants to prefabrication initiatives, such as PrefabAus, the peak body for Australia’s off-site construction industry. 

PrefabAus received a reported 28 million AUD grant from the government. The grant will help deliver constructions that are cheaper to build and just as safe.

Simultaneously, the grant seeks to reduce delay times, reduce CO2 emissions by 50% and building waste by 80%.

Housing demand

It’s no secret that Australia’s property market is booming! Part of the reason that property prices keep going up is that there aren’t enough houses in the market.

The government may be concerned that Australia may find itself in a housing bubble in the future and has taken measures to ensure that there are secure mortgage laws in place so that people who can afford their mortgages take them.

In addition to banking laws, increasing the number of homes to meet the high housing demand is another way to level the market out. Modular homes are being set up to be the potential disruptors that can meet the demand.

This is not a bad idea, as modular homes are cheaper and faster to build. Win-win!

Cost Efficiency

Modular homes are a great way to save between 10 - 15% in building costs and up to 40% in construction time when compared to traditional homes. With people leaving jobs in record numbers as well as several industries experiencing a significant slump, cost efficient housing is a priority.

On average, a modular home will cost between $2500 and $3000 per square metre and vary depending on factors like size, additional upgrades, choice of materials, distance to the factory etc.

  • $114,000 - 85 m² home with 2 bedrooms and 1 bathroom
  • $148,000 - 152 m² home with 2 bedrooms and 1 bathroom
  • $219,000 - 205 m² home with 3 bedrooms, 2 bathrooms and 1 study

Are modular homes a good investment?

Modular homes, like all property, are a good investment. But, as a savvy investor, you probably need to know what the benefit of investing in a modular home is before you pursue that path.

So let’s break down some of the pros and cons of modular homes and investing in them. You can also read our blog answering the question  “Should You Invest in Real Estate?” for more background information.

Pros of investing in modular homes 

  • They are built in a controlled location, so they’re faster to build
  • They have a high level of quality control 
  • Construction costs less than a conventional home because of fewer hazards and fewer travel costs
  • Once built, modular homes need less upkeep and are cheaper to maintain in the long run
  • The value of a modular home increases over time
  • Modular homes are easier to get tenanted because most of them are new (read our guide on how to research what tenants really want to find out how to attract good tenants)
  • When you invest in a modular home, you save on stamp duty and taxes because you’re initially buying the plot of land only
  • Interest paid on the construction of a modular home may be tax-deductible
  • A lot of innovative building methods go into modular home construction that reduces the carbon footprint of a home
  • Modular homes are built with materials like wax for better insulation - this will appeal to tenants who want to save on heating and cooling bills!

Cons of investing in modular homes

The truth is, there aren’t many cons when it comes to modular homes! However, you might need to keep your eyes peeled for:

  • Sizing requirements when building
  • Getting a loan 

Sizing requirements

When the modular home is moved from the factory to the site, it is transferred in sections and put together onsite. Even in this case, you may be limited by road transportation size requirements. Be aware of these beforehand.

Can you get a loan for a modular home?

The simple answer is, yes - however the reality of it can be a bit more complicated, especially in Australia. While most lenders are willing to provide loans for a modular home, each lender will have their own rules and requirements.

Modular homes are becoming increasingly popular as lenders scramble to catch up. Banks are slated to start rolling out financial schemes for relocatable homes in the near future, making this a much more accessible option.

Until then though, the best way to figure out what would work for your particular situation is to talk to different lenders about their requirements for modular home loans.

An investment for the future

So yes, modular homes are a pretty good investment!

They are cheaper to build, easier to tenant, just as safe for the present, and the future.

Whether you’re keen on capitalising on a market that is going to boom in the next few years in Australia or you are keen on playing your part in the fight against climate change, they’re certainly an investment of the future and one that you might want to consider!

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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.

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