Workers' cottages are very cute, but can be difficult to buy

They're often cute as a button but some workers' cottages can be difficult to buy ??? and sell.

Last month, a modest one-bedroom cottage in Melbourne's inner west, just slightly bigger than a standard double garage, sold for $540,000.

It was a celebrated result given the tiny Seddon property boasted a floor plan of 40 square metres. Set on a 61-square-metre block, it sold for $8850 per square metre.

To put this bite-sized piece of real estate into perspective, the average floor area for new apartments in Victoria is 131 square metres, according to Comm Sec, while new houses take up 243 square metres on average.

The Seddon cottage was on the market for three months before it sold in late December to a first-home buyer from Newtown who plans to live in the property.

Real estate agent Theo Panay from Barlow McEwan Tribe said 31A Greig Street had attracted strong interest throughout the selling campaign.

"It's got a bit of a celebrity status. It's quite well known in the area," Mr Panay said. "The previous owner called it the dollhouse."

Its small size proved to be a big financial barrier for some, Mr Panay said, with three contracts falling over because banks tightened their lending criteria and asked for a 60 per cent loan-to-deposit ratio.

"I've not sold anything that small before," Mr Panay said.

Graham Cooke, insights manager at Finder.com.au, said it was more difficult to secure finance for small properties than larger homes.

"You'll find some banks won't lend at all to anybody who is buying a property less than 50 square metres," Mr Cooke said.

"Generally the reason is because the bank needs to be confident they can resell the property if you're not able to pay back the mortgage.

"If they think it would be a lot of hassle or take a lot of time to resell that property, then they would probably consider that too risky to take on a security for a home loan."

Mr Cooke said banks often required a deposit larger than 20 per cent on small dwellings. "Different banks have different rules and you'll often get exceptions as well.

"You can get around it obviously if you have a guarantor."

Traditionally, workers' cottages were small, single-storey dwellings built in industrial urban areas.

Once the nation's most common dwelling, many have been bulldozed to make way for larger homes and apartments. But those remaining in Melbourne have become hot property, largely because of their proximity to the city.

Wakelin Property Advisory's Paul Nugent said a typical worker's cottage would have two bedrooms and a conventional floor plan on an 80 to 100-square-metre block.

He said the smaller cottages were "anomalous assets" that tended to have unusual floor plans, and were often in pockets that were still industrial.

Mr Nugent cautioned against buying a tiny worker's cottage as an investment property because they might not have broad appeal. "In terms of the pool of tenants out there, you'll be very limited by who you'll find," he said.

Last year, the Victorian government introduced new apartment design standards to reverse the trend of micro-sized units in the inner suburbs.

This story Workers' cottages are very cute, but can be difficult to buy first appeared on The Sydney Morning Herald.