How Much Does a Granny Flat Cost to Build in Melbourne?
A granny flat in Melbourne costs between $110,000 and $200,000 + GST depending on size. Here are the exact figures from our construction team (who build 100+ granny flats annually):
30m² Standard Studio: $110,000 + GST — one bedroom, open-plan living, kitchenette, bathroom. Earns $340–$360/week (or $370–$390/week with bills included). This is our most popular configuration.
60m² Two-Bedroom Unit: $160,000 + GST — two bedrooms, full kitchen, separate bathroom, living area. Earns $480–$500/week. Better suited for couples or small families.
Dual Living (2 × 30m²): $200,000 + GST — two separate 30m² studios on one lot. Earns $650–$700/week combined. Maximum rental yield strategy.
These prices include standard sewer connection (up to 10m), electrical cabling (up to 15m), standard dig depth (0.6m max), and 10m³ mixed concrete. Additional costs apply for rock removal ($300/m³), hard surface cutting ($200/linear meter), or deep sewer connections.
What Return Will I Get on a Granny Flat?
A 30m² granny flat generating $380/week produces $19,760 per year on a $110,000 + GST investment — an 18% gross return with a 5–6 year payback period.
But the real value is what it does to your overall property yield:
Before granny flat: $689K house, $600/week rent = 4.5% yield After granny flat: $859K total ($689K + $170K granny), $1,240/week rent = 8.2% yield
The granny flat also adds approximately $150,000 to your bank valuation once the Occupancy Certificate (OC) is obtained. At 80% LVR refinance, you can recover up to $120,000 of the build cost — effectively building for free.
Our portfolio of 87+ properties shows properties with granny flats consistently achieve 5.5–8% yields versus 3.5–4.5% for standard single-dwelling rentals.
Do I Need Council Approval for a Granny Flat in Victoria?
No Planning Permit is required for granny flats under 60m² in Victoria (as of 2024 rule change). You only need a Building Permit, which costs approximately $3,000.
Key rules:
- Maximum floor area: 60m² (no planning permit needed)
- Minimum lot size: 550–600m² with side driveway wider than 3 metres
- No kinship requirement — your tenant can be anyone (changed in 2024)
- Occupancy Certificate (OC) is mandatory before legally renting — takes approximately 3 days once construction is complete
Timeline: Paperwork takes 1–2.5 months, construction takes approximately 3 months. Total from decision to rental income: 4.5–5.5 months.
Payment Schedule
Our builder uses a 4-stage payment schedule:
- Deposit: 5% (e.g., $5,390 on a $107,800 build)
- Demolition stage: 35% ($37,730)
- Lock-up stage: 40% ($43,120) — when structural framing and roofing are complete
- Final payment: 20% ($21,560) — upon completion and OC
Each invoice has a 5-day payment deadline. Construction loans are available using "as-if-built" valuations — meaning the bank values the completed granny flat before it's built, allowing you to borrow against the future value.
Utility Setup — The Smart Way
Do NOT install a separate water/sewer meter. An independent meter costs $2,000–$3,000 AND doubles your council rate bills.
Instead, install an internal reader/sub-meter ($500–$1,000) and rent the granny flat "bills included" — adding $20–$35/week to the rent. This is simpler, cheaper, and actually increases your total rental income.
For electricity, share the main house connection and install a solar system with battery storage. This reduces overall utility costs while allowing you to build the bills into the rent price.