Renovations are a great way to maximise the value of your home or investment property but a leading building advisory service has warned against overcapitalising in today’s tough economic climate.
Archicentre, the advisory arm of the Australian Institute of Architects has cautioned owners renovating properties for resale and investment purposes that they could devalue their properties with poorly planned and constructed renovations.
The warning comes at a time when the $20 billion renovation market is set to play an extended role in the local building industry, with people investing the $50,000 to $60,000 it costs to move into a new home (including various government taxes), renovating their homes and staying put instead. Historic low interest rates and the availability of tradesmen due to the new housing downturn are a further catalyst for the renovation activity.
Poor design equals bad investment
Angus Kell, Archicentre’s ACT and NSW state manager said unfortunately many people invest in property to secure their financial future without a planned strategy or any idea of the cost of renovating.
“One of the more disturbing issues is that some people actually devalue their investments with poorly conceived designs or inappropriate materials, providing a negative cash flow for the investments and poor re-selling options,” Kell said.
According to Archicentre some of the worst examples involve period houses, where poorly designed flat roof extensions have been added, houses painted in garish colours and money poured into expensive bathroom and kitchen fittings at the expense of light and space.
Kell said another costly mistake is to inadvertently change the house from one market segment to another. For example, converting the third bedroom of a three-bedroom house into a walk-in robe and ensuite, changing the property from a three-bedroom house to a two-bedroom one with a drop in value of possibly $100,000 after spending perhaps $40,000 on the project.
“The renovation decisions people make today will certainly impact on the resale value of their property and the extent of their retirement funds in the future,” he said.
The basics of planning and costing the renovation to work within an available budget combined with a clear understanding of how to tender the work out and manage the renovation project, is fundamental to the success of any renovation.
Kell said a well planned and executed renovation or extension could see the owners recoup their investment with perhaps a 50 percent tax-free capital gain and a greatly enhanced lifestyle.
Last year Archicentre architects undertook 20,000 inspection, design and renovation reports for home owners and found that many people needed assistance in visualising their renovation. Archicentre is often called in when a renovation is halfway through and people recognise that the renovation will not deliver what they envisaged.
“At this stage it is very difficult to reverse a badly designed project where a lot of money has already been spent,” Kell said. “However, this is the risk people run if they have not followed careful and professional planning.”
Tips for maximum return
According to Archicentre, the top tips for renovating a property for maximum return include:
- Purchasing a property that is structurally sound.
- Assessing the financial potential with a design and cost analysis before purchase.
- Ensuring the structure is capable of supporting the renovation or extension.
- Checking the planning regulations to avoid costly planning appeals.
- Ensuring the design, finishes and fittings do not overcapitalise the property.
- Utilising design to deliver lifestyle requirements being demanded by the market.
- Creating a design where additions are compatible with the existing structure.
- Obtaining competitive building or subcontract prices.