Renovations boom in Australia: does it make money sense?

Homeowners’ wealth is soaring thanks to the real estate boom and they’re pouring money into renovations, but should beware of the traps.

Surging house prices, continuing Covid uncertainty and the spectre of higher interest rates are set to prolong Australia’s renovation boom.

But before beginning a fresh home improvement, householders are being urged to check that it remains affordable despite likely delays and rate rises, and that it stacks up financially.

Housing Industry Association senior economist Nick Ward says money spent on renovations jumped 16.8 per cent in the year to September to $44 billion, and the HIA expects “activity will remain elevated this year and in the foreseeable future”.

“Australians have increased the value they put on the quantity and quality of their home space,” he says.

Ward says renovations have also benefited from the government’s HomeBuilder subsidy, the pandemic stopping other forms of spending, lockdowns giving people capacity for DIY renovations, and higher house prices giving homeowners more equity and financial firepower to renovate.

Lending company SocietyOne’s CEO, Mark Jones, says rising interest rates could prompt more people to renovate, but they should first understand their existing financial position and their reason for renovating.

“Ensure your budget includes a buffer for unexpected costs, especially in the current climate where there may be material supply shortages and price increases,” Jones says.

Renovator Luke Sugars with wife Carly and sons Hendrix, 11, Romeo, 9 and Phoenix, 13.

“Look for a fixed-rate finance option with a predictable repayment schedule, helping you to easily manage repayments,” he says.

“There are so many great resources that can help you determine the best way to add value to your home through a renovation. A little research and planning can go a long way.”

Higher interest rates could put people off buying real estate, and Covid’s impact on working from home makes renovating easier.

Buyer’s agent, renovator and investor Chris Gray says as property prices rise there’s a natural motivation to renovate rather than buy “especially as the 2-3 per cent selling costs and 5-8 per cent re-buying costs rise in proportion to those higher prices”.

“However, Covid has caused issues with supply chains and so the cost of materials has gone through the roof,” he says.

Gray says people planning a renovation should double their expected time frame and budget, and then see if it’s still affordable and worth doing.

“Add the ongoing interest cost to your renovation budget as that is a real cost,” he says.

Gray suggests asking a real estate agent and property manager how much the home would be worth after renovating, as this will help avoid overcapitalising. But don’t undercapitalise either.

“You don’t want to do a cheap reno on an expensive property as the next person will have to rip it out and start again,” he says.

Upside Realty sales director James Kirkland says the renovation boom is here to stay as Australians spend more time at home than ever before.

“The pandemic and lockdowns have turned our houses into makeshift workplaces, schools, gyms, and pubs,” he says.

Kirkland says new reno trends attracting big bucks include:

• Reinventing the shed into man caves, gyms, she-sheds and children’s retreats.

• Zoom rooms as home offices become permanent.

• Vegetable gardens and chicken coops.

• Swimming pools, terraces and rooftops.

Renovator and buyers agent Chris Gray says include interest payments in your calculations.

Luke Sugars, wife Carly and their five children struck Covid-induced supply issues on their renovators’ delight that caused a budget blowout.

The couple took out a fixed-rate personal loan using their family car as security to get a cheaper rate and complete their renovation.

“We knew interest rates could rise in coming years, so an affordable fixed-rate loan was exactly what we needed,” Sugars says.

BEWARE THESE RENOVATION TRAPS

• Is your renovation based on the new “Covid lifestyle”, which may not last forever?

• It’s not as easy as you see it on TV - it’s might be called reality TV but often it’s not as what you see.

• It often does take twice the time and twice the money

• Major renovations without using a professional project manager could cost you more in mistakes, delays and lack of experience.

Source: Chris Gray from Yourempire.com.au